A new study says the risk of flooding in the commercial real estate industry is growing, with costs likely to grow in the billions.
In the United States, approximately 730,000 retail businesses, offices, and apartment buildings are at risk of flood damage each year. According to the First Street Foundation, nonprofit research, and technology group, and global industrial engineering firm Arup, structural damage from flooding is projected to cost $ 13.5 billion in 2022 and reach more than $ 16.9 billion in 2052.
The research included sea-level rise but focused more on flash floods, also known as storm surges.
“This will have an overall impact on the value of these structures as you increase the identified risk and risks for these buildings that are negatively affecting their value today,” said Matthew Eby, founder of the First Street Foundation.
“We have companies like Nuveen or Morningstar or these big institutional investors looking at our data to understand what’s at stake today and during this ownership period,” Eby said. “How do you plan against these things or make sure you are buying the right commercial property?” “
First Street has partnered with Arup to go beyond flood risk, which it has already done for residential real estate. By combining commercial property flood models with Arup’s structural and architectural knowledge, the two were able to understand the impact of flood risk on all specific types of commercial buildings in the country. Depending on the type of building, they could determine the economic consequences of a flood.
“As climate change accelerates, the risk of flooding becomes an economic threat to business premises across the country,” said Ibbi Almufti, Risk and Resilience Team Leader at Arup in San Francisco. “This new report will be a guide to understanding specific building risk and taking action to mitigate the effects of climate change.”
They also took into account the perceived damage from a shutdown, for example how long the building would be unusable after a flood due to its specific structure.
Researchers have set a price for potential future damage that will contribute to damage to the local economy and productivity. According to the report, the cost of those impacts will increase from $ 49.9 billion in 2022 to $ 63.1 billion in 2052 due to the risk of flooding associated with climate change.
Overall, there is a risk that local businesses in the US will lose the equivalent of 3.1 million working days in the next year alone. In 2051 it could be 4 million. This in turn would increase the economic impact of loss and loss of productivity on all of these properties.
Last year, First Street partnered with Realtor.com to assign a flood score to every home in America. This value could be a warning to homeowners who may not have flood insurance to consider purchasing. 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 more intense rainfall as the atmosphere warms up and contains more water. The aftermath of Hurricane Ida caused unprecedented floods in the northeast, causing billions in damage and nearly 50 deaths.
The flood risk of commercial properties affects not only the owners and tenants of buildings but also the investors in these properties.
“The people who own these 401,000-story buildings are Americans or those commercial real estate investors who own these $ 100 million to $ 200 million buildings,” said Eby, who said if they see the risk now and in the future, they can better understand how the associated risks and potential costs can be calculated before.