Commercial real estate faces $13.5 billion in flood damage in 2022: Report
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Maxar Technologies | Handout via Reuters
The commercial real estate industry is facing an increasing threat from flooding, which is likely to lead to billions in costs, according to a new study.
Approximately 730,000 retail, office, and apartment buildings in the United States are at annualized risk of flood damage. Structural damage from flooding is projected to cost $ 13.5 billion in 2022 and rise to over $ 16.9 billion by 2052, according to the First Street Foundation, a nonprofit research and technology group, and global industrial engineering firm Arup .
Research included sea level rise but focused more on flash floods, also known as pluvial floods.
“It will absolutely have an impact on the value of these structures because you add to the risk and known risks for these buildings which will negatively affect their value today,” said Matthew Eby, Founder and First Street Foundation.
“We have companies like Nuveen or Morningstar or these big institutional investors looking at our data to understand what is at risk today and during this tenure,” added Eby. “How do you plan against these things or make sure you are investing in the right commercial property?”
First Street has partnered with Arup to go beyond simple flood risk, which it has already done for residential real estate. By matching their commercial property flood modeling with Arup’s knowledge of structure and architecture, the two of them were able to understand the impact of flood risk on each specific type of commercial building in the country. Then they could determine the economic consequences of a flood event for the specific type of building.
“As climate change accelerates, flood risk will pose an economic threat to commercial real estate across the country,” said Ibbi Almufti, head of Arup’s San Francisco Risk and Resistance Team. “This new report will serve as a guide to understanding building-specific risks and taking action to mitigate the effects of climate change.”
They also took into account the damage estimate for the downtime, such as how long the building would not be functional after a flood due to the specific structure.
The researchers also set a potential damage price tag, which includes the damage to the local economy and productivity. The cost of these impacts will rise from $ 49.9 billion in 2022 to $ 63.1 billion in 2052, as the flood risks associated with climate change worsen, according to the report.
In total, local companies in the USA will lose the equivalent of 3.1 million operating days in the next year alone. By 2051 it could be 4 million. This in turn would increase the economic impact of lost productivity and production losses on all of these properties.
Last year, First Street partnered with Realtor.com to flood every home in America. This score could warn homeowners who may not have flood insurance to consider it. Federal flood maps are often out of date and until recently did not take into account the effects of climate change.
The nation is now experiencing much heavier rainfall as the atmosphere contains more water as it warms. The remnants of Hurricane Ida triggered unprecedented floods in the northeast, causing billions in damage and killing nearly 50.
The flood risk for commercial properties affects not only the owners and tenants of the buildings, but also the investors in these properties.
“The people who actually own these buildings are the average American on a 401,000 plan, or those commercial real estate investors who own these $ 100, 200 million buildings,” said Eby, who added that as soon as they did By seeing this risk now and in the future, they can better understand how the associated risks and potential costs can be mitigated.