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HUB International 2022 Outlook

Real Estate Industry


Stability, Creativity and Growth

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Real Estate Will Tell a New Story

A hoped-for “return to normal” in real estate isn’t yet on the horizon. Instead, 2022 will be about how owners and operators position themselves to maximize opportunities while still coping with the impact of COVID-19.

A new view of risk in real estate

Real estate owners and operators will shape their risk story as 2022 will bring difficulties in securing coverage.

To survive, some real estate owners and operators reinvented themselves in 2021, repurposing property to meet new market demands.

To secure coverage, real estate owners need to show underwriters strong risk management and operational controls

In 2022, they'll continue such efforts to deal with ubiquitous catastrophe exposures, rising liability risk and shifting demand. At the same time, residential real estate portfolios face heavy challenges.

And with the surge in working from home, commercial real estate demand still falls well short of pre-pandemic numbers.1 Retail has rebounded somewhat, benefiting from pent-up demand, but the transformation of the sector — think repurposing empty storefronts and turning vacant shopping malls into warehouses — will accelerate.2

In terms of risk, it wasn't just COVID-19 that shaped the 2021 real estate market. Wildfires, coupled with an unexpected deep freeze in Texas, ate up a significant portion of property insurance capacity.3 Hurricane Ida alone packed a $25 billion punch.4

At the same time, in the shadow of the tragic Champlain Towers collapse and several natural disasters, residential property risk increased. As a result, real estate owners with multi-family high-rises in their portfolio must layer policies to secure even baseline coverage needs.

Because coverage is harder to secure, and policies cover less, many small single-property and large portfolio owners fear frequent and significant claims without adequate coverage during another pandemic lockdown or bout of civil unrest.

But some real estate sectors — entertainment, institutions and to a lesser extent, retail — are seeing improvement in business and insurance. Painting a picture of risk management and operational controls for underwriters is now essential to securing coverage.

1 VTS, VTS Office Demand Index (VODI) Monthly Report, August 2021.
2 PwC, Urban Land Institute, Emerging Trends in Real Estate 2021, accessed September 17, 2021. 
3 S&P Global, “As US wildfire threat grows, insurance capacity shrinks,” July 21, 2021.
4Hurricane Ida losses could reach $25 billion: Fitch”, Business Insurance. August 30, 2021. 

Here’s what to expect from the real estate industry in 2022:


While weather catastrophes are extreme, they are no longer rare


Strict adherence to risk management will be indispensable for success in real estate

1. Catastrophe exposures will shrink coverage options and raise rates

Extreme weather doesn't discriminate. Properties built on hills and in canyons to avoid wildfires a decade ago have lost their brush clearances. Buildings once miles away from the nearest flood zone suffered significant water damage during the 2021 hurricane season.

Nearly one in three Americans were living in a county hit by a weather disaster during the summer of 2021.5 And the winter storms that damaged wide swaths throughout Texas and the Southwest are thought to have been the largest first-quarter natural disaster event ever in the U.S.6

While these catastrophes are extreme, they are no longer rare. Real estate owners and operators should expect more of the same in 2022, affecting all sectors (though residential in particular).

In addition, FEMA has redrawn flood lines to encompass larger areas while raising rates in high-risk zones. Portfolio owners are considering property coverage costs and exclusions before buying.

The result is that reinsurers, the companies that insure P/C carriers, will be exiting the market, drying up capacity and rates. That directly translates into real estate owners and operators having fewer coverage options and higher rates, particularly in areas where catastrophes are more frequent.

Perhaps most unsettling? This type of market will be the new normal through the 2020s. It also means strict adherence to risk management — and consulting with an insurance broker — will be indispensable for success in real estate.

5 The Washington Post, “Nearly 1 in 3 Americans experienced a weather disaster this summer,” September 4, 2021. 
6 Reinsurance News, “2021 testing re/insurers catastrophe budgets: AM Best,” September 6, 2021.

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CAT modeling and tried-and-true risk management solutions will help secure coverage

2. Risk management tools like catastrophe modeling will look even better in 2022

With global first-half 2021 catastrophe losses of $42 billion — of which $40 billion was related to natural disasters7 — real estate portfolio owners will start to see catastrophe (CAT) modeling and other tech tools as a necessary cost of doing business.

CAT modeling will be critical in helping property owners understand the extent of their risk, estimate necessary policy limits, and secure coverages accordingly. Underwriters have taken notice, with some requiring CAT modeling and other predictive tech for large portfolios.

However, old-fashioned, non-tech risk solutions and controls, such as water mitigation and disaster recovery planning, will never go out of style. Lower rates follow a tried-and-true formula: Provide proof that risk mitigation plans are bespoke to the facility, train staff to engage those plans and conduct frequent on-site inspections.

7 Business Insurance, “Insured cat losses $42B in first half: Swiss Re,” August 12, 2021. 


2022 US Real Estate Insurance Market and Rate Report

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When a building is repurposed, its risk profile changes as well

3. Boosted by low interest rates, repurposing chugs ahead

Losses and vacancies have brought new opportunities to every market. Repurposing means an unprofitable asset can be reimagined and rebuilt anew.

Perhaps most notably, failed big box stores and anchor mall tenants have found new life as warehouses — instead of retail outlets, these buildings now warehouse products bought online. Other buildings will be repurposed as entertainment and restaurant space. And the trend of using ghost kitchens to make meals for multiple delivery services and restaurant brands will continue.

Repurposing will gain steam in 2022. Low interest rates have helped drive repurposing, and interest rates are expected to remain relatively stable through the end of 2022.8

Owners and operators eager to repurpose property need to remember that when a building's purpose changes, so does its risk. The closed restaurant repurposed as a cannabis dispensary takes on a whole new set of risks and needs to be designed for purpose. Evaluating new risks and coverages with a broker is an absolute must when repurposing.

8 Bloomberg, “Fed Likely Needs to Raise Interest Rates As Soon As Late 2022, IMF Says,” July 1, 2021.

For habitational and residential real estate overall, insurance rates will rise 20% or more

4. The multi-family housing insurance market will require creative solutions

Multi-family housing coverage will remain problematic in 2022.

A long-standing rise in the frequency of claims — often, “social inflation” is the culprit — will continue to affect portfolio owners of multi-family housing. That's scared off many mainstream carriers, which will only offer coverage for residential properties with reduced limits requiring layers of policies to meet even baseline coverage needs.

There will be more scrutiny as well: Underwriters will put loss history, previous damage and updates to electrical, plumbing and roof structures under a microscope in 2022. We estimate that in the habitational and residential real estate market overall, rates will rise 20% or more.

As a result, owners and portfolio managers are often having to secure coverage at the time of quote, without the ability to shop around.

That doesn't mean all doom and gloom for residential real estate owners. Instead, it's incumbent upon them to implement proper risk management measures, and to tell the property's risk management story to underwriters, painting an accurate picture of controls implemented to prevent high-cost claims.

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Moving forward in 2022

Rebuilding and repurposing properties may be necessary for some owners and operators. But it won’t be easy, requiring fit-for-purpose planning and valuation that reflects how the pandemic, social unrest and adverse weather have changed property use and operations.

Owners who want to reduce their exposure and increase resiliency will need to engage both new tech and traditional controls across their portfolio — regardless of location, property use and catastrophe exposure.


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