Hurricanes Ian and Nicole devastated Southern Florida, leaving many people wondering how the CRE market will be affected. The hurricane has already forced many people to evacuate and businesses to close their doors, causing a lot of uncertainty in the medical CRE market, as many people are unsure about what the future holds.
According to a study by Marcus & Millichap, “Southwestern Florida counties — including Collier, Lee, DeSoto, Hardee and Charlotte — were some of the most affected, with winds up to 150 miles per hour and a storm surge that surpassed 12 feet, causing significant damage to these communities. Insured losses alone are projected to surpass $67 billion, making Ian one of the costliest storms in Florida history without yet accounting for the broader infrastructure damage and uninsured losses.”
Hurricanes Ian and Nicole and the destruction that came with it have the potential to make Florida’s insurance markets even more unstable than they already were. With six companies going out of business this year alone and nearly 30 others on watch lists due to financial woes at any time soon, according to the study – many offices will find themselves unable (or unwilling)to properly secure their property due to financial instability.
Insurance premiums will likely increase as insurance companies try to recover the costs for damage repairs. Many commercial tenants are already struggling to keep up with the rising costs of their premiums, and this will only add to the financial burden as landlords increase rent to make up for the rising premiums.
Businesses in Florida already pay some of the highest insurance premiums in the country, and these rates are only increasing as the costs of hurricane damage continue to rise. For many businesses, these increased costs are passed on to tenants in the form of higher rents or annual rate increases. This puts even more financial strain on businesses that are struggling to keep up with the rising costs of operating in Florida. Hurricane Ian has only fueled a fire that was already lit.
As insurance costs go up, landlords will raise lease rates to recover those costs. This could price out some smaller businesses and force them to close their doors, further shrinking the market.
Tenants currently locked into a lease may not see those increases until it is time to renew the lease agreement. At that point, they may be forced to accept the higher rate or face the possibility of being unable to find a new place to lease that is affordable.
At this point, it is impossible to say definitively how these recent hurricanes will affect the future of the Florida medical CRE market. Only one thing is certain: Hurricane Ian has had a major impact on the Florida medical CRE market, and its aftermath will be felt for years to come.
According to Marcus & Millichap, “Once infrastructure has recovered, the area will likely continue to draw residents from outside the metro, due to a favorable tax climate, warm weather and job opportunities. Long term, however, buyers may take a more strategic approach moving forward when choosing assets to invest in.”
With the rising number of residents, Southern Florida will need to increase the number of medical facilities to serve the population. This could mean good news for the medical CRE market, as new development and investment will be necessary to meet the demand.
Hurricanes Ian and Nicole had a major impact on the state’s economy, and it will be several more months before the full extent of the damage is known. In the meantime, businesses and individuals should be mindful of the potential for further economic disruptions and be prepared to respond accordingly. With the first quarter of 2023 fast approaching, it’s important to keep an eye on the situation in Florida and be prepared for whatever comes next.