When the Atlanta GA tax assessors determine the value of your office building for property tax purposes, their decisions are largely based on the specifics of your building and on the state of the market. Usually, their estimate of your property's value assumes that its value moves in the same direction as the greater Atlanta market. With this in mind, the key to managing your property assessment is to understand the broader market. That way, you can better gauge how your property's performance compares.
2013 was a healthy year for the Atlanta office market, meaning that it's likely that the Atlanta GA tax assessors will choose to increase your property's value. Vacancies declined and rents held steady. At the same time, investors were willing to pay lower cap rates for properties, which came out in a higher price per square foot for the Atlanta GA tax assessor to capture.
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Market Fundamentals
One area of the market that might give the Atlanta GA tax assessors some pause before raising your property's tax value is rental rates. According to data from CoStar Group, the Atlanta office market had an overall asking rent of $18.83 per square foot at the end of 2012. It ended 2013 with less than a 0.1 percent increase to $18.85.
However, while the market as a whole was stagnant, both Class A and Class B rents grew by approximately 1 percent, from $22.17 and $16.29 to $22.30 and $16.50, respectively. Certain markets grew even more quickly. North Fulton average asking rents went from 17.46 to $18.14 -- a 4 percent increase -- and South Atlanta rents grew 3 percent from $16.37 to $16.91
The market-wide occupancy picture is even healthier. Atlanta ended 2012 with an overall 16 percent vacancy rate. It ended 2013 with 15 percent vacancy, even after approximately 660,000 square feet of new deliveries, according to CoStar. Furthermore, every submarket cluster in Atlanta -- other than Northlake, posted positive net absorption.
The Atlanta GA tax assessors use this information, to make two assumptions. The first is that your property's net operating income is not likely to have grown significantly on the basis of increased rent. The second is that your occupancy should be the same or better. If your building is not performing up to these standards, though, you could end up being over assessed.
Sales Data
On top of the market fundamentals that the Atlanta GA tax assessors use to derive your building's potential NOI growth, they also looks at sales data to determine both which capitalization rate to apply and which price per square foot value to apply to your building.
Cap rates in Atlanta moved down significantly during 2013. Based on average sales data from CoStar Group, a property that might have sold at an 8.68 cap in 2012 would have traded hands at a 7.93 cap one year later in 2013. For a mid-sized office building with a $1.2 million NOI, the Atlanta GA tax assessor could assume the value grow from $13.8 million to $15.1 million.
Commensurate with the cap rate compression, prices per square foot also went up in the Atlanta market. Looking at properties over 15,000 square feet and at the first 9 months of 2012 and 2013, values went from $128.96 to $149.37. This 15.8 percent increase is even more than 9.4 percent increase that an Atlanta GA tax assessor would attribute to cap rate compression.
When the Atlanta GA tax assessors analyze the market and your building, they are likely to see a higher value. If you don't think this is correct, we can help with your property tax appeal.
