Office buildings are valued on the same income approach as other leased commercial property, but the rent, vacancy and lease-up assumptions behind that value are specific to office space.
Tax class
Where a municipality uses it, office property is placed in the office building class, taxed at its own rate. Where that class is not in use locally, office buildings are typically assessed in the general commercial class instead.
How MPAC values office buildings
The income approach for an office building works from the market rent per square foot for the class of space, an allowance for vacancy, the operating expenses the building carries (management, utilities, a capital reserve) and a capitalization rate that reflects the building’s class, condition and location. Each of those inputs is worth comparing against your own rent roll and operating statement.
Vacancy as an argument
Leasing patterns for office space have shifted in many markets since 2020, and vacancy is one of the inputs MPAC has to assume when it values an office building. Where a building’s actual vacancy, or the time it has taken to lease space, does not match what MPAC assumed at the valuation date, that gap is worth raising on the file. This is a factual comparison against your own leasing record, not a general claim about the market.
Lease-up
A newly built or recently repositioned office building that is still filling up should be assessed at the leasing stage it was actually at on the valuation date, not assumed to be fully leased. This is a common point of difference on newer buildings.
Lease structure matters too. A building leased mostly on a net basis, where tenants pay their own share of expenses directly, does not carry the same expense assumption as a building leased on a gross basis, where the landlord covers more of the cost. MPAC’s expense assumption should match how the building is actually leased, not a generic standard applied across every office property.
The class of space matters as well. A well-located, well-maintained building with modern systems commands a different rent and a different capitalization rate than an older building with dated systems and finishes, even in the same neighbourhood. If MPAC’s assumptions do not distinguish between the two, that is worth raising on the file.
- Confirm the tax class the building is assessed in.
- Compare MPAC’s rent and vacancy assumption to your actual rent roll.
- Check the capitalization rate against comparable buildings in the area.
- Confirm the assessment reflects the building’s actual leasing stage on the valuation date.
- Confirm the expense assumption matches whether the building is leased net or gross.
None of this is about arguing that office space in general is worth less than it used to be. It is about checking that the specific rent, vacancy and lease-up assumptions MPAC used for your building match what your building actually shows on its rent roll and operating statement at the valuation date.
Our assessment appeals service works through each of these points, and the annual income and expense return filing feeds directly into MPAC’s rent and expense assumptions. For the mechanics behind rent, vacancy, expenses and cap rate, see our guide on how MPAC values income properties. Owners with more than one office building may also want a portfolio review, and appeal deadlines are on our key dates page.