While residential property assessments moderated in 2023, a sharp decline in the value of downtown Vancouver office properties could leave other property owners making up the difference.
The constrained land base for commercial and industrial development in the Lower Mainland supported an increase of up to 20 per cent in assessed value as of the valuation date of July 1, 2023, BC Assessment said in releasing 2024 assessment data this week. This compares to a plus or minus 5 per cent shift in values for residential properties, which account for about 88.5 per cent of assessments. The total value of the 2024 roll is $2.8 trillion.
“Across the Lower Mainland and throughout B.C., the overall housing market has generally stabilized in value,” BC Assessment assessor Bryan Murao said in a statement.
Commercial and industrial properties changed between zero and 10 per cent provincewide. In the Lower Mainland, the range was a bit wider, with gains of as much as 20 per cent.
But much of this was in the industrial class, where some properties increased upwards of 30 per cent, though Murao said the double-digit gains fell short of those seen during the heady days of yore.
“Compared to some prior years, it’s not all that much,” Murao told Western Investor.
But averages mask a serious shift in certain areas, said Paul Sullivan, principal and regional leader in the Vancouver office of property tax and software provider Ryan ULC.
Sullivan’s analyses indicate that the majority of the movement in assessed values in the industrial sector occurred in the past three years, with just small pockets experiencing gains beyond the 5 per cent range this year.
This masks a more critical drop in the value of office properties, particularly in downtown Vancouver where vacancies rose significantly in the past year even though the market remains in relative balance compared to other major downtowns elsewhere in Canada.
“Office building values on the 2024 assessment roll are down 25 to 35 per cent. That is a dramatic shift in the value of our most highly valued asset class in the Lower Mainland,” Sullivan said.
Since downtown makes up half the value of the municipal tax roll, and 45 per cent of municipal taxes are borne by commercial properties, the decline in downtown office values will significantly boost non-office, non-residential properties’ share of the municipal tax burden because they account for a greater share of commercial values.
“We are going to see a major shift of tax burden onto non-office properties, and that’s going to be those industrial properties that are stable or went up, it’s going to be the land-value sites,” he said, noting that it promises another blow for beleaguered community retailers.
Vancouver approved a 7.5 per cent increase to its operating budget in December, and the valuation shifts will compound the impact on community retail and industrial properties.
Sullivan said the fact BC Assessment published the proportion of assessed value gains attributable to non-market factors such as new construction, subdivisions and the rezoning of properties should have people asking why tax increases can’t be mitigated by some of the new tax revenue.
In the Lower Mainland, non-market forces account for 45% of the increase in the tax roll while provincially the proportion is 49 per cent.
“That’s newfound money to each of these municipalities,” Sullivan said, urging municipalities to “tell the public about that and build that into your [budget increase].”
Despite warnings in October that this year’s wildfires would impact property values, BC Assessment said the impact was by and large negligible.
“I don’t think that they really impacted the B.C. real estate market in any substantial form,” Murao said.
This runs counter to an October 16 press release from BC Assessment that said “2023 Wildfires Could Impact 2024 Property Assessments.”
“We understand that 2023 has been a very difficult and stressful year for British Columbians who have had to deal with wildfires,” Murao said in the release, which asked property owners “to connect with BC Assessment for assistance in determining their property's accurate status.”
However, the typical rate of change in West Kelowna, for example, was a decline of up to 10 per cent in assessed values.
Murao told Western Investor the market appears to be factoring in the risk of wildfires, with significant long-term impacts falling short of fears.
“We’re getting enough of them year over year in B.C. now that what we’re seeing in the longer run is … the market tends to rebound quite quickly,” he said.
