The Insurance Implications of Real Estate Redevelopment and Repurposing

High office vacancy rates, underused mall space and shifting consumer habits have led commercial real estate owners to repurpose buildings as new entertainment centers, retail destinations and even residential spaces.

While the initial, pandemic-related wave of repurposing resulted in transformations done quickly and often out of desperation, today, owners and operators are using data to determine the right mixture of lessors that will attract customers, increase tenant revenues and drive higher rents.

But often these transformations bring up insurance challenges that even the savviest real estate owners can’t foresee.

New uses, new risks

There’s pressure to adapt. Office vacancies are expected to peak at 19% in 2025,¹ while retail vacancies reached 2.6% in May 2025, the first increase in more than two years. Shopping malls and neighborhood centers have been among the hardest hit.²

Focusing on what’s economically viable, as dictated by data, has resulted in successful repurposing projects. Vacant malls or anchor stores are becoming entertainment centers. Underused office towers are being reconfigured as mixed-use retail and residential developments. Strip centers are finding second lives as healthcare clinics.

Municipalities see the upside, too. Repurposed properties can generate higher tax revenues, revitalize neighborhoods and boost local economies.

However, repurposing commercial space changes a property’s risk profile and insurability. For example, turning office space into residential units places new demands on plumbing, electrical, fire safety and HVAC systems. It can also bring up regulatory issues like ADA compliance.

Owners shouldn’t assume that their existing policies will apply. Carriers may require detailed information upfront before quoting or binding coverage.

How tenants affect the insurance implications of real estate redevelopment

Tenant selection plays a significant role in insurability. Even though they may be profitable, carriers often see businesses like cannabis dispensaries, tattoo parlors and casinos as too risky. A concentration of several in one location can make the entire property difficult or even impossible to insure.

Underwriters now routinely require full tenant rosters and run detailed risk assessments across the entire property, not just anchor spaces. High insurance costs or an inability to obtain coverage can quickly offset a high-revenue lease.

Don’t overlook unused spaces

It’s also important to pay attention to the conversion process itself and vacancies during redevelopment. When too much of a building is unoccupied, it can trigger insurance vacancy clauses that reduce coverage or increase premiums.

Some owners pursue a “delay and decay” strategy when faced with regulatory pushback, maintaining minimal occupancy and keeping properties just barely functioning in the hopes that municipalities will become more cooperative with conversion plans.

Vacant areas carry a heightened risk of fire, vandalism and unauthorized entry. Without proper planning and coverage, these unused spaces can expose owners to significant risks.

Working with insurance brokers who can coordinate expertise across multiple specialties, such as real estate, construction, healthcare and entertainment, helps determine appropriate coverage before real estate owners and operators are faced with issues that can derail a repurposing project.

Contact HUB’s real estate insurance team for more information on how to overcome the many challenges in repurposing commercial real estate.

¹ CBRE, “U.S. Real Estate Market Outlook 2025,” accessed June 10, 2025.
² National Association of Realtors, “May 2025 Commercial Real Estate Market Insights,” accessed June 12, 2024.