The commercial real estate landscape in 2025 is a tale of two markets. While some sectors are experiencing a resurgence, others continue to face significant headwinds. This growing divergence is not only reshaping investment strategies but also creating a complex and often confusing environment for property tax assessments. For commercial property owners, understanding these trends is crucial to navigating the evolving valuation landscape and ensuring fair and accurate taxation. 

Recent data reveals a market characterized by a flight to quality, where investors are pouring capital into premium assets while leaving lower-tier properties behind. This bifurcation is most pronounced in the office and retail sectors, leading to a widening gap in property values and, consequently, property tax liabilities. 

The Flight to Quality: A Widening Gap in the Office Sector 

The office market is undergoing a significant transformation. While headlines have been dominated by rising vacancy rates and the persistence of remote work, a closer look reveals a more nuanced picture. A clear divide has emerged between modern, well-amenitized Class A properties and their older, less desirable Class B and C counterparts.  

According to a recent report from CBRE, the overall office vacancy rate is expected to peak at 19% in 2025 [2]. However, the report also projects that vacancy in prime buildings will return to its pre-pandemic rate of 8.2% by 2027, highlighting the resilience of top-tier assets. This flight to quality is also evident in transaction data. Moody's reports that the volume of deals over $100 million was up 35% in the third quarter of 2025 compared to the previous year, while smaller deals have remained flat or declined [1]. 

This trend is further exemplified by the actions of major tech companies. In September 2025, Apple invested $365 million in an office portfolio in Sunnyvale, California, while Nvidia purchased an $83 million office building in Santa Clara [1]. These cash-rich companies are taking advantage of a market where some sellers are offering significant discounts, with some properties trading at a 39% discount [1]. 

Caption: Modern Class A office buildings with premium amenities continue to attract investors and tenants, creating a widening gap with older properties. Credit: AMDG Architects Source: amdgarchitects.com 

 For property tax purposes, this bifurcation means that not all office buildings are created equal. While owners of prime properties may see their assessed values hold steady or even increase, owners of older, underperforming buildings may have a strong case for a reduction in their property tax assessments. Assessors must consider the specific characteristics and performance of each property, rather than applying a broad-brush approach to the entire office market. 

Open-Air Retail’s Renaissance: A Bright Spot in a Shifting Landscape 

In the retail sector, a similar story of divergence is unfolding. While traditional enclosed malls continue to struggle, open-air retail centers are experiencing a renaissance. These properties, which include neighborhood, community, and strip centers, are attracting significant investment as consumer preferences shift toward convenience, accessibility, and outdoor shopping experiences. 

Data from CBRE indicates that the overall retail availability rate will remain at a record low in 2025, with limited new supply and strong demand for well-located space [3]. This is particularly true for grocery-anchored centers, which are among the best-performing retail property types. Investors are taking notice, with buyers like Nuveen, Tanger, and InvenTrustProperties collectively pouring nearly half a billion dollars into retail properties in September 2025 alone [1]. 

Caption: Open-air retail centers are drawing significant investment as consumer preferences shift toward outdoor shopping experiences and convenience-focused formats. Credit: ICSC Source: icsc.com  

The rise of e-commerce has also played a role in the success of open-air centers. As more consumers shop online, these properties have become essential hubs for facilitatingpickups and returns. This has led many retailers who had previously focused on malls to shift their expansion plans to open-air centers [3]. 

From a property tax perspective, the strong performance of open-air retail centers is likely to translate into higher assessed values. However, it is important for property owners to ensure that these assessments accurately reflect the specific characteristics of their property and the local market conditions. For example, an assessor may not be fully accountingfor the increased competition from new developments or the specific tenant mix of a particular center. 

What This Means for Your Property Tax Bill 

The divergence in the commercial real estate market presents both challenges and opportunities for property owners. As assessors grapple with these complex trends, it is more important than ever for property owners to be proactive in managing their property tax liabilities. The Los Angeles County Assessor's Office, for example, publishes annual trending factors for various commercial property types, but these are broad benchmarks that may not capture the nuances of a specific property [4]. 

If you own a commercial property, it is essential to understand the specific dynamics of your local submarket and how they are affecting your property's value. If you believe your assessed value is not aligned with the current market reality, you may have grounds for a property tax appeal. While the process can be complex, a successful appeal can result in significant tax savings. For more information on the appeals process, you can review our guide to property tax appeals. 

A Look Ahead: Key Trends to Watch in 2026 

The great CRE divide is likely to continue in the coming year. The flight to quality in the office sector will persist, with prime assets commanding premium valuations while older properties struggle to compete. In the retail sector, the dominance of open-air centers will continue, driven by changing consumer habits and the ongoing evolution of e-commerce. 

For commercial property owners, staying informed about these trends is the first step to effectively managing their property tax burden. By understanding the forces shaping the market, you can ensure that you are not paying more than your fair share. To stay up to date on the latest commercial real estate trends, consider subscribing to our newsletter. 

Resources 

[1] CNBC: Commercial real estate deals are slowing, but two sectors shine: Moody's - https://www.cnbc.com/2025/11/04/commercial-real-estate-deals-are-drying-up-but-two-sectors-shine-moodys.html 

[2] CBRE: U.S. Real Estate Market Outlook 2025 - Office/Occupier - https://www.cbre.com/insights/books/us-real-estate-market-outlook-2025/office-occupier  

[3] CBRE: U.S. Real Estate Market Outlook 2025 - Retail - https://www.cbre.com/insights/books/us-real-estate-market-outlook-2025/retail 

[4] Los Angeles County Assessor: Trend Factors - https://assessor.lacounty.gov/businessowners/trends