Expected Assessed Value Changes In 2023
In November, BC Assessment provided a summary of assessment changes that they were planning to institute for the 2023 roll values in comparison to the 2022 roll values for ICI properties. We have paraphrased BCA’s comments for ease of reading. Our comments are in italics, with our advice at the end.
Property assessments are as of July 1st, 2022, so our commentary will focus on what occurred in 2022.
Multifamily Land & Properties Under Construction
BCA did not provide any indication of how values of development sites had changed. Given that most other values have risen, one might anticipate the same.
With interest rate increases, rising costs and a fall in condo values a drop in land values should follow. This will affect vacant land and buildings under construction. Historically we have found BCA often do not allow enough for costs to complete and thus their value of partially completed buildings is often high.
Continued strong demand led to BC Assessment increasing many property values, with the majority up as much a 30%. Values everywhere are going up. In summary:
- Rental – Increases in lease rates throughout the lower mainland, with substantial increases in rural and Fraser Valley.
- Capitalization Rates – Stable in core areas, with some decrease in outlying regions, which is the same trend as last year.
The shortage of industrial space has not abated, leading to increased rents. The average asking net rental rate climbed 7% quarter-over-quarter and has increased by 23% over the last year. Vancouver is the only location in Canada with average asking rates above $20/sf (Colliers Q3 Industrial Market Report). Although vacancy rose by 0.1% to 0.2%, this does not help matters. There is very little space available for large tenants.
Increases have been applied by BCA in all areas, with substantial increases in Fraser Valley. The majority of increases are up to 30%, with Burnaby seeing the least change. Richmond and Surrey are seeing higher average increases than elsewhere.
Large increases were applied by BCA to Burnaby and the North Shore in 2021 (around 40%) so a smaller increase is somewhat to be expected. However Vancouver has seen increases up to 30%.
With the scarcity of industrial land now hitting even outlying areas, we can expect prices to rise until enough inventory becomes available to meet demand.
The majority of assessments have seen marginal increase, with 40% being between 0-4%, and approximately 25% between 5-14%. The situation is similar to last year in many respects. In summary:
- Rental Rates – Stable for Vancouver Core, with suburban rents seeing more substantial increases.
- Capitalization Rates – Stable with mild decreases in the Fraser Valley.
Despite disruptions to the supply chain and rampant inflation, the outlook for retail has some positives. A comparison of asking rates, from 2019 and from 2022, on seven local retail streets suggests net asking rents on a per square foot basis have been increasing back to pre-pandemic levels (Cushman & Wakefield Retail Q3 Marketbeat), with West 4th and Gastown sitting well above their 2019 rates. Supply is still in short demand with vacancy in malls decreasing and availability of street front at a premium.
This category has seen increases in value almost everywhere, with most increases being 12%-16%.
- Rental Rates – Slight increases in all markets.
- Capitalization Rates – Slight decreases in Vancouver downtown, stable elsewhere.
The market seems healthy based upon a review 0f Colliers Office Q3 Report. However with only small changes to rental and cap rates by BCA, 12-16% increases in assessed values seem high.
Assessed values have increased everywhere except Vancouver downtown which has seen some decreases. Burnaby has seen the largest increase in the core area, between 15-25%, while Vancouver East and West and Richmond are more moderate increases ranging between 0-20%
New developments in downtown Vancouver have increased supply which has likely driven value decreases. Elsewhere pent-up demand is high and supply is low, causing increases as supply fails to match demand.
Multifamily remains in demand, however despite this the majority of assessments only increased by 0-4%, with a few increasing up to 25%, mostly in Fraser Valley. In summary:
- Rental – Flat to moderate increases in Vancouver, Richmond, and Burnaby. Fraser valley rentals increased substantially, adding to significant increases in 2021.
- Capitalization Rates – Flat throughout the lower mainland.
Given the rent increases, we might have expected a larger increase in values.
Some points to note.
- Property assessments are as of July 1st, 2022. BCA has stated “Since July 1, we know that the real estate market has changed as interest rates continue to rise and overall sales volume has declined. As a result, your next property assessment could be higher than what the current market value might be.”
- Buildings under construction may be over-assessed. Value falls can be anticipated. The question is whether BCA have allowed high enough costings in their valuations, reduced condo values and allowed for interest rate increases.
- Land values could be high, as the market started changing in April 2022, but it may be difficult to prove.
- Whenever BC Assessment increases or decreases the values, the question is whether the differential is correct.
- A rise in assessment will not necessarily result in a similar increase in taxes.
- Even if the % increase seems fine, the original value may have been high.
- If you have never had a tax review on a property, it is recommended, as it establishes a base for reviewing assessment in future years.
Call us if you require further elaboration or require assistance with your assessments.
Peter Austin, BSc., AACI, Carb
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