By Andrew Welsch
Apartment buildings, stores, industrial warehouses, and other commercial real estate properties are getting a lot more costly to insure. That's because of rising climate risks from hurricanes to hailstorms, according to a new report from data analytics firm First Street.
Insurance premiums for commercial real estate have increased by approximately 158% since 2017 and have outpaced inflation, First Street found. Higher insurance costs have also had an effect on property values, pushing them lower in high-risk markets.
Homeowners across the U.S. have also been faced with rising insurance costs, but commercial real estate has arguably been under more pressure. That is because some state regulators limit how much insurance companies can raise premiums on homeowners.
"It's not just a residential issue, it's a commercial real estate issue too, and in some ways it's worse," says Jeremy Porter, chief economist at First Street.
Leading indicator. Porter says commercial real estate can be a leading indicator because it is so closely tied to the market for reinsurance, which is insurance for insurance companies. It helps insurers cover expenses associated with extreme weather events which have picked up in frequency and potency in recent years.
Reinsurance costs have nearly doubled since 2017, according to First Street.
Climate risks and reinsurance costs have also pushed up insurance prices for residential homeowners and even curtailed the availability of insurance in some risk-prone states such as Florida and California.
"Because CRE [commercial real estate] insurance is largely unregulated compared to personal lines, these reinsurance trends are passed directly to policyholders, contributing to faster and more volatile pricing cycles," the report states.
Pressure builds. Insurance coverage is crucial for property owners to protect their investments, and it's emerging as a source of financial pressure. The burden is heavier for more densely occupied buildings, such as industrial buildings and multifamily apartments, according to the report.
The price of insurance for industrial buildings has risen from $0.08 per square foot in 2017 to $0.24 in 2024, according to the report. For multifamily buildings, prices have risen from $286 per unit to $879. Insurance premium increases can be volatile and hard to predict, Porter says. "What you are really dealing with there is the potential for insurance price shocks," he says.
How higher insurance costs filter down to tenants of commercial real estate varies, the report says. Landlords may face legal limitations on raising tenants' rents in rent-controlled properties, for example. As a result, owners often absorb rising costs.
Florida example. Some areas of the country face higher risks, and that is weighing on operating margins and suppressing asset appreciation for property owners in those regions. The report points to Fort Lauderdale, Fla., where office property values grew steadily from 2010 through 2020. Subsequently, insurance costs nearly doubled between 2020 and 2024, while office property values fell by more than 17% during this same period, according to the report.
Porter says insurance markets can go through hard and soft cycles, where prices soar and then moderate. But given increasing climate risks, it's likely that prices will keep rising over the long term, Porter says. "Insurance is really the canary in the coal mine," he says.
Write to Andrew Welsch at andrew.welsch@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
May 07, 2026 00:01 ET (04:01 GMT)
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