Do Values Stand Still?

Recent history tells us that real property values almost never stand still. In many markets, values broadly tanked beginning in 2008 until a slow climb back up began in about 2011.

But what if values did stand still, even as population, employment and credit availability fluctuated? That would only happen if there somehow was a fortuitous synergy of precisely offsetting economic and social events. Humans creating policy will never effect that scenario.

Real property values don’t stand still for long, and the fluctuations are not consistent or linear. Market changes impact different market segments in different ways: values for office and industrial product can increase while multifamily and retail decline… quickly, slowly, or erratically.

Keeping up with fluctuating property economics is a real challenge for assessors of commercial property. Don’t short change your market model. Maintenance of accurate values means watching local trends in:

  • Rents
  • Vacancy
  • Expenses
  • Tenant Improvements
  • Overall Cap Rates

All of these elements (not just rents) must be sensitized to type, subtype, tenant design, size, quality, and location.

Since available sales are rarely sufficient for commercial stratification, income modeling is critical. If you craft your own models, they must reflect local reality from the start and be updated annually. This is the only way to stay current with changes in your market.

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