Insurance Costs put Pressure on CRE
A recent analysis by Moody's Analytics- utilizing data on more than 100,000 properties across the U.S. - found average U.S. CRE insurance costs increasing at 7.6% AGR since 2017, well above the 2-3 percent inflation that market participants generally budget for. In markets particularly exposed to climate-related risks, insurance costs have jumped by as much as 17% - and insurance availability has become an issue. These trends present a challenge for insurers, property owners, CRE underwriters, lenders and asset managers.
Building Performance Standards Gain Momentum
A new report from CBRE outlines how Building Performance Standards (BPS) aimed at decarbonization and climate risk management are gaining momentum across the U.S. In 2023, ten new jurisdictions joined the 45 states and municipalities that already have mandatory BPS laws on the books, while 7 additional jurisdictions have rules under development. Last year the federal government launched a National BPS Coalition to coordinate such legislation, which relies on a combination of penalties for and public disclosure of non-conforming assets alongside enabling rules like those governing green leases, submetering, etc. For insurers, navigating the mandatory and voluntary standards and code landscape is a complex but critical piece of the low-carbon, climate-resilient underwriting and investment puzzle.
The "S" in the ESG, of CRE
The International Well Building Institute reports rapid uptake nearly 5 billion sqft certified in 128 countries. The Fitwel standard reports 1 billion sqft, concentrated on the U.S. Research affirms the potential for high performance buildings to drive physical and mental health benefits, leading to increased employee satisfaction, productivity and retention, reduced absenteeism and medical costs, and higher rents and asset values. Insurers can capitalize on the nexus of sustainable and healthy buildings as an impact investing theme and strategy to mitigate underwriting risk while positioning for the sizeable health and wellness focused "insurance ecosystem."
A Wave of Tech will Transform Sustainability, and Risk
Technology is at the center of the sustainable building transformation. From smart sensors and data analytics, to intelligent HVAC and lighting systems, energy management and automation, predictive maintenance, security, and more - the future of CRE is powered by technology, AI, and Internet of Things (IoT) solutions that will revolutionize how people interact with the built environmen t, and how stakeholders leverage real time building data for decision making. While the global smart building market is projected to grow from USD $100 billion in 2023 to over 400 billion by 2030, research from CRE leaders shows that technology adoption is still in its earliest stages. Insurers can proactively work to understand the associated changes in the risk landscape, adjust underwriting, and position tailored policies and risk services. Their asset management functions can in turn leverage that in-house knowledge to identify the CRE segments, players and technology providers that are likely to outperform in digital, sustainable, and healthy future.