On October 1, Florida businesses leasing commercial space will experience a sweeping tax relief, as the state ends its unique, decades-old surcharge on commercial rent payments—a policy that has weighed heavily on tenants for more than half a century. Florida, the nation’s only state to levy a specific sales tax on commercial leases, had at times charged as much as 6% on rent, most recently 2%.
Jonathan Kingsley, vice chairman at Colliers, told GlobeSt.com earlier that the elimination of this tax could mean millions of dollars in potential savings for some tenants. For example, Trepp’s Senior Research Manager Thomas Taylor calculated that a tenant paying $100,000 per month in rent would save $24,000 annually in taxes. Technically, these savings should flow directly to tenants, as the surcharge no longer applies to commercial rent payments. However, Trepp cautions that the outcome will depend on market dynamics—landlords may opt to keep rents flat to attract and retain tenants, raise them to recapture some of the tax savings, or find a compromise based on “submarket dynamics and lease negotiation leverage.”
The policy change marks another reason for companies considering relocating to Florida, potentially boosting future leasing activity. Trepp notes that nearly $19 billion is outstanding in securitized loan balances for Florida’s retail, office and industrial assets, with Miami’s metropolitan area accounting for $10.3 billion, or 54% of the total. Retail properties are especially impacted: Miami holds $5.8 billion in retail loan balances, while Orlando and Tampa follow with more than $1.2 billion each.
Despite focusing on securitized loans—which represent only a small portion of commercial real estate financing—the impact in Florida’s broader CRE market is likely more extensive. Recent years have seen statewide asking rents in retail and industrial sectors dip about 3% since 2022, according to Trepp, with office rents just below their peak. Average effective rents tend to trail asking rates due to concessions. But in some cases, effective rents have outpaced, suggesting landlords may be holding back on actual rent charges to attract tenants, or the market is softening.
With the removal of the rent tax, tenant affordability may improve, potentially driving leasing volume higher and prompting landlords to reconsider pricing strategies. The long-term impact, Trepp projects, could include greater rent retention, increased leasing activity and opportunities for growth in net operating income. Another effect could be modest cap rate compression, especially in sectors where overall occupancy costs discourage tenants.
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