The value of all real estate and business property in Santa Clara County jumped up by $41.2 billion last year, despite a contracting market in the latter half of 2022.
That topline figure represents a 6.6% increase over the prior year, according to Santa Clara County Assessor Larry Stone’s 2023 Assessment Roll. Real estate and business property in the county are currently worth roughly $661 billion.
While the roll saw stronger than expected growth last year, continued slowing of the real estate market for residential and commercial property through 2023 indicates property values could be hit hard next year, Stone said.
The annual roll, released Wednesday, calculates the net assessed value of all residential and commercial land and buildings in the region from Jan. 1, 2022 through Dec. 31, 2022., plus business property like office equipment and furniture.
“Given the economic downturn that we are seeing now, we were surprised actually that the impact wasn’t as negative as we thought it might be,” Stone told San José Spotlight about the increased value.
The major drivers of the increased value were property changing hands, which allows new assessments to be made, and new construction. Changes in ownership accounted for $21.5 billion in added value and new construction added about $6.8 billion.
Stone said it was the strong start to 2022 that carried the year.
“For the first half of last year, up until about July and maybe August, the property markets in almost all cases were strong. Residential market prices were still increasing, a little tough on the office market,” he said.
A property’s assessed value determines the property tax owed on it each year. In California, because of Prop. 13, assessed values can increase by a maximum of 2% annually unless a property changes hands or has significant new construction. The limits imposed by Prop. 13, passed in 1978, are a huge financial boon to property owners and significantly cut away the amount of funding schools and local governments receive from property taxes.
Residential values and transactions were at record levels in early 2022, but cooled by the latter half of the year. In response, Stone’s office temporarily reduced the assessed value of roughly 17,000 properties, which will allow those property owners a commensurate break on their property taxes. That change dropped the roll value from transactions by roughly $3 billion from the prior year.
New construction was also booming in early 2022, with major projects including the Winchester Apartments in San Jose adding $236.5 million of value to the roll, and the 1 million square-foot Google Caribbean Drive campus in Sunnyvale that added $223.1 million, the assessor’s office said.
“Silicon Valley was on the precipice of unprecedented new commercial development when an uncertain economy and business outlook caused everything to slow down,” the assessor’s office said in a news release.
While there are large commercial projects in progress, fewer new projects are beginning. Others, like Google’s 80-acre Downtown West project in San Jose, are on hold for now.
“For the last six or eight years, the office market was the darling of all property markets in real estate, and now it’s at the bottom,” Stone said. “There are a lot of office buildings in particular that have been in the pipeline that aren’t going to break ground simply because the vacancy in the office market is accelerating, impacted a lot by remote working.”
While property transactions and new construction are generally the leading contributors to growth in the roll, Stone highlighted an “unprecedented” contribution this year from business personal property. Business personal property includes machinery, equipment, computers and fixtures that are installed or used in commercial buildings.
Due largely to increasing inflation slowing the depreciation of certain goods, business property values increased by nearly 10% in 2022, accounting for $47 billion in value. Stone called the change “highly unusual” and noted other major metro counties around the state saw a similar pattern.
Looking ahead, because of the slowdown in property markets and commercial development, Stone said he is cautious about the coming year.
“In the next roll year, I think we’ll see a much greater downturn than we saw this year,” Stone said. “I’m not suggesting it’s going to be a disaster, because I don’t think it is. But, things are temporary.”