The past few years have seen some of the costliest hurricanes in recent history. In 2021, Hurricane Ida alone caused nearly $75 billion in damages, impacting commercial properties like offices, multifamily, and more. Hurricane season continues to get more active yearly for various reasons, including a warming climate. The tropical Atlantic averaged about 14 named storms, seven hurricanes, and three major hurricanes annually from 1991 to 2020. In 2020, there was a record-setting 30 named storms. The following year saw 21 tropical storms and 20 storms in 2023.
The same climatic conditions that have recently supercharged hurricane season are converging again. This year, the NOAA National Weather Service forecasts above-normal hurricane activity in the Atlantic basin. Already, we have seen the earliest Category 5 storm on record with Hurricane Beryl. A confluence of factors is pointing to a busy hurricane season, including near-record warm ocean temperatures in the Atlantic Ocean. The National Weather Service also cites factors such as the development of La Nina conditions in the Pacific, reduced Atlantic trade winds, and less wind shear, which all tend to lead to tropical storm formations.
Property owners in high-risk areas are on high alert. Hurricanes can inflict massive damage to commercial properties, causing structural impairment, loss of power, and flooding. The damage often leads to significant repair costs and long recovery times. Business disruptions can also be severe, with buildings forced to close temporarily or permanently. After major hurricanes, commercial property insurance premiums have also risen because of increased risk. The higher insurance costs have made owning and operating commercial property more expensive in certain states, especially Florida.
The real cost
Climate change has significantly impacted commercial property insurance premiums nationwide, but few states have felt the brunt as intensely as Florida. Rising sea levels and the ever-present threat of hurricanes have sent property insurance costs skyrocketing, with premiums surging by 125 percent over the five years leading up to 2023. According to AM Best, Florida’s annual property insurance premiums jumped to 27 percent last year. In contrast, the national increase in premiums has decelerated, growing by nearly six percent compared to about 15 percent the previous year.
Following devastating hurricanes, some homeowners may move to safer areas. Commercial building owners may not always have that option. Increasing natural disaster risks are beginning to impact investment decisions and where owners buy and develop properties. In the absence of leaving a hurricane-prone area altogether, many building owners in high-risk areas are devising mitigation strategies to protect assets from severe damage.
As the most active period of the hurricane season draws closer, many tried-and-true methods for risk mitigation still apply. Owners can make properties more storm-hardened to prevent heavy winds and flooding damage. A storm-hardening checklist also usually involves checking for proper drainage and flood protection and evaluating structural areas like building envelopes, roofs, windows, and wall types. Property owners often note the location of air handling units, electrical and mechanical systems, and whether emergency generators have enough capacity for a power outage.
Property owners in hurricane-prone regions often conduct storm-hardening assessments to identify vulnerable areas that need reinforcement. Strengthening buildings against the powerful forces of nature can involve a variety of improvements. For example, installing stronger walls and shatter-resistant windows is crucial to keeping water out during a storm. Doors, especially glass doors and storefronts, are also at high risk for hurricane damage. Using exterior doors with three hinges can significantly enhance their ability to withstand strong winds. Opting for metal or solid wood core doors increases their resistance to air pressure changes and flying debris. Additionally, glass doors can be fortified with plywood and shutters for protection. Building owners have been using these strategies for a long time; what’s changed is the amount of new technology that can further help building owners prepare for severe storms.
Supermodels
A hurricane’s impact is primarily determined by where it makes landfall, which can’t be predicted months in advance. However, new catastrophe models are used today to estimate potential storm tracks. These models identify which areas are most exposed to damaging hurricanes. Forward-looking climate models can provide a more complete look at expected property damage now and in the future. The models offer a more strategic edge to risk management.
With the help of various climate risk vendors, building owners are also examining their portfolios’ annualized damage rates (ADR), which estimate the average annual damage as a ratio of value for hurricane winds and storm surges. A metric like ADR provides more nuanced insights on potential hurricane damage that help prioritize mitigation measures. Property owners view annualized damage rates for years in advance and asses potential return on investments for asset-hardening actions.
Some real estate firms are taking their climate analysis even deeper. Climate tech vendors now offer advanced services, allowing property owners to evaluate physical risks across asset portfolios. These services provide detailed, validated climate risk data to quantify potential annual losses in monetary terms and percentages.
CBRE has partnered with the UK-based risk analysis platform Climate X to enhance their climate risk assessments. Climate X equips CBRE’s sustainability specialists with precise risk data, transforming complex climate scenarios into straightforward, actionable insights. This collaboration helps CBRE clients assess their properties more accurately and clearly identify potential risks. “We are simplifying complexity for our clients through a transparent, end-to-end approach to climate risk assessments and decarbonization strategies at a global and asset level,” said CBRE’s Chief Sustainability Officer Rob Bernard.
Full disclosure
The Securities and Exchange Commission’s new climate disclosure rule also prompts real estate investment trusts to investigate further physical climate risks that impact various properties differently. These risks include severe weather impacts such as hurricanes, floods, extreme temperatures, and drought.
REITs and others rely on climate tech vendors that utilize publicly available raw climate data from sources such as NASA and NOAA to model the vulnerability of countless asset types to climate-related hazards. These platforms quantify physical risks in financial terms, like average annual loss.
The data will help real estate firms comply with the SEC’s new climate rules while preparing assets in the country’s most impacted areas. This deep analysis provides a longer-term view of climate risks that helps real estate companies avoid surprises at a portfolio-wide level as severe weather risks continue to mount each year.
Aftermath
After a damaging storm, connected devices like water sensors monitor buildings and identify areas with leaks. Advanced water sensors are especially important following a storm if a facility has a history of water damage because the devices spot issues before they lead to major losses.
Advanced water sensors are strategically installed on pipes and near systems prone to accidental water intrusion. These sensors provide 24/7 real-time alerts, immediately notifying property managers of leaks and potential damage. Despite this cutting-edge technology, swift response times remain crucial. Many property managers, therefore, establish dedicated teams and water damage prevention programs. When a leak is detected, these teams quickly mobilize to mitigate any potential water damage, protecting the property efficiently and effectively.
As hurricanes strengthen yearly, building owners have many new technologies to help protect their assets. The latest tech may not solve every problem, but it at least helps real estate companies pinpoint glaring issues and think about risks more strategically. If the National Weather Service’s forecast is correct, this year is gearing up to be another dangerous hurricane season. For building owners, new tech tools will provide an extra layer of protection that will hopefully reduce the losses of any major storms to come.