The past few years have seen some of the costliest hurricanes in recent history. In 2021, Hurricane Ida alone caused approximately $75 billion in damages, affecting commercial properties such as offices and apartment complexes. Hurricane seasons are becoming more active every year for various reasons, including a warmer climate. From 1991 to 2020, the tropical Atlantic averaged approximately 14 named storms, seven hurricanes, and three major hurricanes per year. In 2020, a record 30 named storms occurred. The following year saw 21 tropical storms, and in 2023, 20 storms.
The same weather conditions that recently intensified hurricane season are converging again. This year, NOAA's National Weather Service is predicting above-average hurricane activity in the Atlantic basin. Already, Hurricane Beryl produced the earliest Category 5 storm on record. A confluence of factors is expected to lead to an active hurricane season, including ocean temperatures in the Atlantic approaching record highs. The National Weather Service also cites factors that lead to tropical storm development, including the development of a La Niña weather system in the Pacific, weakening Atlantic trade winds, and reduced wind shear.
Property owners in high-risk areas are on high alert. Hurricanes cause significant damage to commercial properties, resulting in structural damage, power outages, and flooding. Damage often leads to costly repairs and long recovery times. Business disruption is also severe, forcing buildings to close temporarily or permanently. Commercial property insurance rates also rise after major hurricanes due to increased risk. Rising insurance premiums have made commercial property expensive to own and operate in some states, such as Florida.
The real cost
Climate change is having a major impact on commercial property insurance premiums nationwide, but few states are feeling the effects more than Florida. Rising sea levels and the ever-present threat of hurricanes have caused property insurance rates to soar, with premiums increasing 125% over the five years ending in 2023. Annual property insurance premiums in Florida jumped 27% last year, according to AM Best. In contrast, national premium increases have slowed, increasing nearly 6% from about 15% the year before.
After a devastating hurricane, some homeowners may choose to relocate to safer areas. Commercial building owners don't always have that option. The increased risk of natural disasters is beginning to impact investment decisions and where owners choose to buy and develop properties. Without the ability to completely leave hurricane-prone areas, many building owners in high-risk areas are devising mitigation strategies to protect their properties from severe damage.
As the most active part of hurricane season approaches, many proven methods for risk mitigation still apply. Owners can make their buildings more storm-hardened to prevent damage from high winds and flooding. A storm-hardening checklist also includes ensuring proper drainage and flood protection, and evaluating structural parts such as the building's exterior, roof, windows and wall type. Property owners often note the location of air-conditioning units, electrical and mechanical systems, and whether emergency generators have sufficient capacity in the event of a power outage.
Property owners in hurricane-prone areas often conduct storm resilience assessments to identify vulnerable areas that need reinforcement. Strengthening buildings against the powerful forces of nature involves a variety of improvements. For example, installing stronger walls and shatter-resistant windows is essential to prevent water intrusion during storms. Doors, especially glass doors and storefronts, are also at higher risk of damage from hurricanes. Using exterior doors with three hinges greatly improves their ability to withstand high winds. Choosing doors with metal or solid wood cores improves their resistance to changes in air pressure and flying debris. Additionally, glass doors can be reinforced with plywood and shutters for protection. Building owners have been using these strategies for a long time, but what has changed is the amount of new technology that can further help building owners prepare for severe storms.
Supermodel
The impact of a hurricane depends largely on where it makes landfall, and cannot be predicted months in advance. However, new catastrophe models are now being used to forecast potential storm paths. These models identify areas most exposed to damaging hurricanes. Forward-looking climate models can more comprehensively predict current and expected property damage. These models provide an additional strategic advantage in risk management.
With the help of various climate risk vendors, building owners are also examining their portfolio's Annualized Loss Ratio (ADR), which estimates average annual losses as a ratio of hurricane wind and storm surge values. Metrics like ADR provide more insight into potential hurricane damage and help prioritize mitigation measures. Property owners look at annualized loss rates several years into the future to evaluate the potential return on investment of asset hardening measures.
Some real estate companies are going much deeper with their climate analysis. Climate technology vendors are now offering advanced services that allow property owners to assess physical risk across their entire asset portfolio. These services provide detailed, verified climate risk data and quantify potential annual losses in monetary and percentage terms.
CBRE has partnered with UK-based risk analytics platform Climate X to enhance its climate risk assessments. Climate X provides CBRE's sustainability professionals with accurate risk data, translating complex climate scenarios into easy-to-understand, actionable insights. The collaboration will enable CBRE's clients to more accurately assess their properties 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 Rob Bernard, Chief Sustainability Officer at CBRE.
Full Disclosure
The Securities and Exchange Commission's new climate disclosure rules are encouraging real estate investment trust companies to further explore the physical climate risks that have different impacts on different properties. These risks include the impacts of severe weather such as hurricanes, floods, extreme temperatures and drought.
REITs and other companies rely on climate technology vendors that leverage publicly available raw climate data from sources like NASA and NOAA to model the vulnerability of myriad asset types to weather-related disasters. These platforms quantify physical risk in financial terms, such as average annual losses.
This data will help real estate companies prepare assets in the most impacted regions of the country while complying with the SEC's new climate regulations. This in-depth analysis provides a long-term view of climate risk and can help real estate companies avoid surprises at a portfolio-wide level as severe weather risks continue to increase annually.
aftermath
After a damaging storm, connected devices like water sensors can monitor buildings and pinpoint where there are leaks. If a property has a history of water damage, advanced water sensors are especially important after a storm, as the devices can spot issues before they lead to major losses.
Advanced water sensors are strategically installed near pipes and systems where water is likely to accidentally enter. These sensors provide real-time alerts 24/7, immediately notifying property managers of leaks and potential damage. Despite this cutting-edge technology, a quick response is still crucial, which is why many property managers have specialized teams and water damage prevention programs in place. When a leak is detected, these teams are quickly mobilized to mitigate potential water damage and protect the property efficiently and effectively.
With hurricanes getting stronger every year, building owners are turning to a lot of new technology to protect their assets. While the latest technology won't solve all the problems, it can at least help real estate agents identify the major issues and think more strategically about risks. If the National Weather Service's forecast is correct, this year is shaping up to be another dangerous hurricane season. For building owners, new technological tools can provide additional protection and help mitigate losses from future major storms.