Assessment Lags vs. Market Realities: Taxing Issue for Owners

Most commercial real estate owners track cap rates, vacancy trends and interest rate movements with discipline. Far fewer apply the same rigor to the methodology behind their property tax assessments, but that methodology may be one of the most consequential variables impacting their bottom line.

Property tax is typically the largest single operating cost for commercial real estate owners. But unlike market rents or financing rates, it isn’t determined by the market alone. It’s shaped by jurisdiction-specific rules: when a property is valued, what data assessors use and how often the cycle resets. These are distinctions that create fundamentally different risk profiles, depending on where assets are located.

New York, Chicago and Dallas each represent a distinct model: annual but backward-looking, triennial and volatile and annual but disclosure-constrained. Understanding the difference is a necessity.

Rate is only half the story

The instinct when comparing property tax burden is to lead with effective tax rates. In 2024, Chicago’s commercial rate stood at 5.275 percent, New York’s at 4.824 percent and Dallas’s at 2.240 percent. However, the rates alone don’t explain what you actually owe.

A property valued by the assessor at 70 percent of market value in a high-rate city can carry a lower tax bill than one assessed at 95 percent of market value in a lower-rate jurisdiction. Because assessors apply mass appraisal techniques—broad statistical models applied across property categories rather than individual property valuations—errors happen across entire sectors without correction. Understanding your exposure means looking past the rate and into the methodology.

New York: the slow creep problem

New York revalues properties annually, which sounds like it should produce current assessments, but the reality is more complicated. The city’s 2026 commercial assessments were based on 2024 financials that property owners are required to report to the city in 2025. This means the assessment cycle is perpetually one full operating year behind market reality.

For older buildings, secondary locations and assets absorbing higher operating costs, this lag is a real problem. The Department of Finance has nudged capitalization rates upward, but those adjustments haven’t fully offset declining rents and rising expenses. This leaves many non-trophy properties overassessed relative to current market reality.

Compounding this is the city’s phase-in structure. Assessment increases are phased in at 20% per year over five years, with each new cycle stacked on top of the last. Owners can find themselves paying taxes on rising values that are years removed from the present. The risk in New York isn’t sudden shock but a steady creep anchored to stale data.

Chicago: when catch-up comes all at once

Chicago’s triennial reassessment cycle means owners can go years with minimal change until the update arrives and everything resets. For 2024 taxes, properties were assessed based on Jan. 1, 2021, valuations.

The 2024 revaluation, which updated values to a Jan. 1, 2024 effective date for 2025 taxes, produced wildly uneven results. Some office values dropped more than 20 percent. Others rose up to 50 percent. Retail changes ranged from a 7 percent increase to a 30 percent decrease. Certain multifamily properties fell more than 60 percent. The Cook County Assessor applies standardized market-level parameters rather than each property’s actual financials. Specific vacancy issues or rent concessions go unaddressed unless the owner actively pursues an appeal.

With Chicago carrying the highest effective commercial tax rate in our study at 5.275% and benchmark Class A office taxes reaching $13.15 per square foot, the stakes of an inaccurate assessment are substantial. In a triennial model, inaction is expensive.

Dallas: lower rates, higher volatility

Dallas assesses annually, which implies a more current picture. But as a nondisclosure state where sale prices are not required to be publicly reported, assessors work with incomplete market data, creating significant year-to-year volatility. At 2.240 percent, Dallas’s commercial rate is lower than Chicago’s and New York’s. However, it is roughly double the rates in Los Angeles and San Francisco and triple those in some other major U.S. markets. Lower is not the same as low.

The 2025 update illustrates the volatility. Industrial properties saw assessment increases of 30 to 80 percent, in part because assessors working without access to sale prices are forced to play catch-up as market conditions shift—and when the market has been appreciating fast, the gaps can be dramatic. Some owners are effectively paying taxes on a tight industrial market that no longer exists. That said, Texas law provides a useful lever: Assessments must be equal and uniform, giving owners the right to challenge values based on comparisons with similar properties.

The underlying issue

Despite their differences in methodology, all three markets reflect a broader national pattern: property tax systems built on lag, assumption, and incomplete data. Across the U.S., assessed values are increasingly disconnected from market reality, and the gap is widening as interest rates, remote work and sector-level disruption reshape valuations faster than assessment cycles can track. In every market studied, properties are being assessed both well above and well below current sale prices within the same sector. The disconnect between assessed and market value is not a macro phenomenon. It’s an individual property issue that requires an individual response.

Office properties showed higher assessment-to-sale ratios than other sectors across most markets, signaling that assessors have been slow to absorb the structural shift in that asset class. Industrial properties showed the inverse, pointing to future increases as updated sales data enters the next cycle.

The phase-in mechanism in New York, the triennial catch-up in Chicago and the nondisclosure-constrained cycle in Dallas each create windows where assessed values diverge from market reality. Owners who engage proactively with current comparables and maintain a clear understanding of local methodology are best positioned when those windows eventually close.

Property tax is one of the few significant operating costs that is negotiable. Across the U.S., the disconnect between assessed and market value represents a recoverable cost hiding in plain sight. In every market, the assessed value on your notice is a starting point, and for most commercial property owners, it’s the wrong one.

Shane Moncrief is principal & practice leader for property tax consulting at Ryan.