Overcoming Stubborn Challenges To Resilience: HUB’s 2023 Real Estate Industry Outlook

Author:
Bill Passarotti
Senior Vice President
HUB International

With inflation reaching a 40-year high in 2022, interest rates will remain high and possibly continue to increase in 2023.1 Rising construction costs, as well as more frequent and extensive property claims, will exacerbate market challenges. In 2023, real estate owners and operators who understand their risks and embrace creative market solutions will have better insurance coverage options at lower cost. Heading into 2023, real estate owners and operators should take the following into account when it comes to their profitability, vitality, and resiliency:

• Climbing interest rates have made loans and refinancing more expensive and rates are likely to stay high and increase in 2023.2 Real estate owners and managers will need to plan for further rate hikes and continued high inflation, which will make it more difficult for their commercial and residential lessors to make rent.
  
  
• A Difficult Insurance Market: Various factors such as carriers’ increased scrutiny of insurance-to value, rising construction costs and supply chain disruptions can make an already difficult insurance market even more challenging in 2023, with carriers pulling back on capacity and significantly increasing insurance rates. For example, commercial property-casualty insurance is projected to increase as much as 20% in most geographies. Expect coverage for habitational and multi-family properties to rise about the same amount.

 
There are bright spots for top properties with lower risk profiles. For instance, underwriters are still offering coverage for fire-resistant Class A high-rise office buildings. Best-in-class property risks will find good coverage at a good rate. Carriers are more likely to offer coverage for properties where the owners or operators are actively trying to prevent damage or liability claims. Underwriters will target best-in-class properties and will require current building valuations before even considering risks.

This emphasizes the importance of working with an experienced insurance advisors on initiative-taking strategies and risk management measures to appear as a favorable risk to the marketplace.

• The challenges of a shrinking workforce: Like many other industries, real estate companies are struggling to find capable employees. In today’s era of remote work, half of commercial real estate companies say geographic challenges have become the top issue in hiring.3 The labor shortage also is affecting real estate indirectly as construction companies are facing delays because they can’t find enough workers and vendors for maintenance, security, and cleaning services are also facing staffing shortages. While real estate owners and operators can do little for the overall labor shortage, they can improve their own recruiting and retention through personalized benefits based on data analytics.

Work a seasoned insurance advisor to develop a tailored strategy that will protect your bottom line, support your workforce, and build resiliency for 2023. To explore HUB’s full 2023 Real Estate Industry Outlook, please visit: https://www.hubinternational.com/insights/outlook-2023/real-estate/ 
 
CIANJ member, Bill Passarotti, currently serves as Senior Vice President with leading global insurance brokerage, HUB International. Based out of Summit, NJ, Bill works with businesses in a wide variety of industries on custom-tailored, comprehensive risk & insurance solutions. He can be reached at 908-​666-6200 or [email protected].

1. Bloomberg, “US Inflation Quickens to 40-Year High, Pressuring Fed and Biden,” June 10, 2022.
2. Wall Street Journal, “Fed Raises Interest Rates by 0.75 Percentage Point for Third Straight Meeting,” September 21, 2022.
3. Northspyre, “Commercial Real Estate’s Most Critical Issue: A Labor Shortage,” September 1, 2022.