Natural Disasters and Rising Insurance Costs: Impact on CRE
Natural Disasters Are Increasing In Frequency And Cost
- Natural disasters with total damage costs exceeding $1 billion have steadily risen since the 1980s
- The U.S. now averages almost 22 natural disasters per year, up from about 13 in the 2010s
- Over 21 natural disasters with at least $1 billion in associated damages have already occurred in 2024
Insurance Costs Have Surged Due To Increased Risk
- Apartment insurance rates doubled from 2019 to 2024, with a peak growth pace of 35% from 2023 into early 2024
- High-risk states like Florida and California have seen outsized insurance rate hikes
- Rate increases spread throughout the U.S. due to insurance providers’ risk diversification models
Rising Costs And Risk Impact Investor Decision-Making
- Insurance costs are 8-10% of total expenses, influencing underwriting
- Rising rates affect migration, with some homeowners leaving high-risk states like Florida
- CRE sectors like self-storage, industrial and retail could see shifts in space demand as people move
*Through 3Q
Sources: Marcus & Millichap Research Services, RealPage, Inc.
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