Arlington Reports Drop in Commercial Real Estate Assessments, Modest Residential Decline

ARLINGTON, Va. – January 20, 2010 – (RealEstateRama) — Arlington’s 2010 real estate assessments declined 7.2%, the first year-over-year assessment decline since 1995. The commercial sector, including office and apartment properties, declined 12.7%. Overall residential property value, including detached homes, condominiums, townhouses, and new construction declined 2.5%.

The commercial real estate sector has been hard hit by the national recession and the tight credit market for commercial transactions. Nevertheless, Arlington continues to be a very attractive place to do business. Office vacancy rates remain low and rental income is strong. In fact, Business Week named Arlington the best place in the nation to ride out a recession, while The New York Times called the County “an oasis of stability.”

For 2010, the average residential assessment is $503,200, down 3.25% from $520,100 in 2009. New construction added roughly 0.7% to the residential tax base. Since peaking in 2007, the average residential assessment has fallen 7.1%. This decline is significant, but far less than declines in most other Northern Virginia jurisdictions. It is evidence that home buyers continue to view the County as one of the most desirable jurisdictions in the greater capital region.

Because previous assessment projections estimated a decline of roughly 9%, the combined County and Schools projected gap for Fiscal Year 2011 (July 2010 – June 2011) has decreased from a projected $80 – $100 million, announced in October 2009, to approximately $65 million.

Budget remains challenging

Acting County Manager Barbara Donnellan has noted that “The FY 2011 budget still remains a challenge. To balance the budget, we will have to use a combination of service reductions and tax rate and fee increases.”

As part of its FY 2011 budget guidance, the County Board instructed the Manager to present a proposed budget that closes the budget gap with an equal mix of expenditure reductions and revenue increases. Over the past several months, County staff has been working with the community to develop a FY 2011 spending plan that addresses the critical needs of the County without overburdening taxpayers. In addition, for the second consecutive year, the County instituted a hiring freeze on non-essential personnel and recently offered an early retirement package to preserve as many services and as many jobs as possible.

“For the second year in a row, we are developing a budget in an unusually difficult economic environment,” Donnellan said. “Still, Arlington’s situation is manageable and with the help of the community, I am confident that we can present the Board with a budget that will protect core services while demonstrating fiscal restraint.”

Donnellan will present her proposed budget for FY 2011 in February 2010.  For more information, visit the FY 2011 Budget web page.

County buffered by diverse real estate base

For 2010, commercial property represents 43% of the County’s tax base, down from 46% in 2009. Over the past decade, commercial properties have varied from a low of 40% to a high of 51% of the County’s total base.

“The County’s diverse tax base makes us extremely resilient,” Donnellan said. “We have a wide variety of sub-sectors including detached houses, townhouses, condos, garden and high-rise rental apartments, office, retail, and hotel properties. Fortunately, we are not overly dependent on any one sector.”

 The County Manager will present a detailed analysis of the County’s 2010 real estate assessments in January. Among the key points:

• The change in the tax base is due to a combination of declining property assessments, which accounted for a decline of 8.2% in the tax base, and growth from new construction, which added about 1.0% to the base.
• The total residential tax base, which consists of single-family neighborhoods of detached dwellings, townhouses, condominiums and cooperative units, declined in value from $31.2 billion to $30.4 billion, down 2.5%. New construction and conversion of property to condominiums added 1.1% to residential property values, while declining assessments accounted for a decline of 3.6%.
• 5% of existing residential properties increased in value, while 20% remained unchanged and 75% decreased in value. 53% declined by more than 3%. Existing detached homes decreased by an average of 2.2%, while existing condominium and cooperative properties decreased by 4.6%
• The commercial property tax base, which includes apartments, offices, hotels, shopping centers and retail properties, decreased by 13.6% due to declining property values and condominium conversions. This decline was offset by a 1.4% increase in new construction.
• Apartment assessments decreased from $9.2 billion to $8.4 billion. The change of negative 8.6% is attributable to three sources: new construction, which added 2.4% in value; conversion of apartments to condominiums, which reduced the base by 1.4%; and declining assessments, which reduced the base by 9.5%.
• Other commercial property decreased in assessed value to $14.8 billion, a decrease in the base of 14.9%. New construction accounted for a 0.8% increase, while declining assessments accounted for negative 15.7%.
• The total value of all commercial property declined 12.7% to $23.2 billion.

About real estate assessments

Real estate assessments are appraisals — the County’s opinions of value for each parcel of real property in Arlington. Assessments are made according to accepted methods, techniques, and standards of the real estate appraisal and assessment profession. The 2010 assessment is an estimate of the fair market value as of January 1, 2010.

Residential assessments were based primarily on neighborhood sales occurring from July 1, 2008 through June 30, 2009. The real estate tax rate determines the amount of the tax that is levied on the property. A uniform tax rate for all real property is set by the Arlington County Board.  For more information, visit the County website.

Press contact: Diana Sun, 703-228-3247