With the devastation from wildfires in LA and the hurricanes that blasted Florida and the Southeastern states still top of mind for many in the U.S., the effects of climate-related disasters on the built environment are increasingly difficult to ignore.
According to the National Oceanic and Atmospheric Administration (NOAA) National Centers for Environmental Information (NCEI), in 2024, there were 27 individual weather and climate disasters with at least $1 billion in damages, trailing only the record-setting 28 events analyzed in 2023. This year opened with the LA wildfires, and while estimates were not yet recorded at press time, NOAA researcher Adam Smith told SIOR Report that the “LA wildfires in aggregate will easily be the most costly wildfire event on record, with current insured losses already tens of billions of dollars, which will further grow.”
The frequency of billion-dollar weather/climate disaster events impacting the United States has steadily increased each decade from three per year in the 1980s to 27 in 2024. The cost per year has also increased, from $22 billion each year on average in the 1980s to an estimated $182.7 billion (to date) in 2024. According to the U.S. Environmental Protection Agency, the primary cause of climate change on Earth is the increased presence of greenhouse gases due to human activities such as burning fossil fuels, deforestation, and industrial processes, which trap heat from the sun and raise global temperatures.
While little can be done to mitigate the root causes in the near term – especially given the current administration’s rollback of federal action on climate change – state and local governments are implementing measures to reduce greenhouse gas emissions, and developers, landlords, and brokers are taking steps to protect their assets and their tenant's businesses.
Legislative Actions
Many states and individual cities have taken action to limit greenhouse gas emissions, including adopting cap-and-trade programs and setting carbon reduction targets. Last July, California implemented the first statewide green building code in the United States, CALGreen, which mandates stringent embodied carbon reduction targets for new construction projects. Cities, including New York, Boston, and Austin, have also instituted green building codes for large commercial buildings.
Typically, we look at the worst-case scenario because it's always better to plan based on the worst case
Local Law 97 (LL97) in New York City, for instance, limits greenhouse gas emissions from buildings over 25,000 square feet. Passed in 2019 and implemented last year, building owners have a choice: invest in energy-efficient upgrades or accept the fines as a cost of doing business. “The whole goal is to make the greenhouse emissions net zero by 2050,” says Faraz Cheema, SIOR, managing director of Manhattan Office Capital Markets at BKREA. “Unlike other cities where some owners willingly comply to get net zero, this is a core requirement in New York City, and there are severe penalties if you're not in compliance.”
While measures by governmental organizations may help slow the effects of climate change, what are developers and building owners doing to protect their assets from climate-related disasters?
Assessing the Risks
James Donath, Director of Project Management at Toronto-based Ecovert Sustainability Consultants, which provides developers and building owners with climate risk assessments and decarbonization planning, says the conversations about the effects of climate-related disasters are “coming up more and more every day. It's on everyone's mind, especially now with what happened in LA.” Ecovert helps its clients develop strategies to mitigate and reduce risk depending on the building's location and the type of climate threats that pose the greatest risk, including severe storms, flooding, wildfires, and extreme heat/cold events.
“The first step is understanding what you’re exposed to,” says Donath. Conducting varying levels of analyses, including historical weather data, climate projections, and GIS (Geographic Information System) mapping to identify whether buildings are located in historical flood zones or areas prone to wildfires or extreme temperatures, are important steps that can be taken.
Primary analysis can include screening that rates a property’s risk exposure. It’s also important to conduct a value-at-risk analysis, which drills down to a system level, taking information from the most recent building condition assessment, breaking down the replacement costs of the building systems over the next five, ten, and 30 years, and assessing how those systems would fare against the various climate-related risk scenarios. “Typically, we look at the worst-case scenario because it's always better to plan based on the worst case ,” says Donath.
Outlining how the physical climate risks could impact the costs needed to maintain the building's critical systems (HVAC, electrical systems, etc.) is another great step that Donath suggests. In Ecovert’s case, third-party software can be used to map out over 250 engineering models to assess the impact on those building components. A list of asset-by-asset recommendations for resilience improvements can then be generated that details what the value-at-risk would be if these recommendations are ignored.
“It's a very helpful [process] for our clients to make planning decisions,” says Donath. “And it goes hand in hand with decarbonization planning. They have the data, so when (building components) are due to be replaced, they can make climate-enhanced decisions that hit their targets for decarbonization but also mitigate any risk they may be exposed to.”
Building Owners Can Mitigate Property Risk
While the cost of constructing or retrofitting properties to mitigate climate-related disasters can be prohibitive for commercial property owners, many of the recommendations also help to improve energy efficiency and reduce the building's carbon footprint.
Donath recommends optimizing the building envelope to withstand extreme weather events, including using reinforced concrete and cross-bracing, adding insulation to an existing building envelope, and installing energy-efficient windows that can withstand extreme winds. Roofs on new or existing buildings should not only enhance the thermal stability of the building but also support the weight of renewable energy sources like solar panels or battery storage for future use. Renewables can provide power when the grid is down following an extreme weather event.
In flood-prone areas, property owners should incorporate flood-resistant materials like concrete or treated wood for foundation materials, prioritize stormwater management, use permeable pavers (in warmer climates), incorporate bioswales and retention ponds, and use the first level of any structure for parking rather than retail or office use. Main and standby power system components should be located on the roof or upper floors.
The rise of climate-related disasters is also fostering innovation. In Tampa, Florida, the Tampa General Hospital – the region’s only Level 1 trauma center – used an "Aqua Fence" barrier to hold back the storm surges brought on by Hurricanes Milton and Helene. “It's important to have more adaptive designs and more modular structures in the future because this climate is continually changing, and storms are becoming more frequent with rising global temperatures,” says Donath.
How Owners and Tenants Can Mitigate Financial Risk
Matt Sultenfuss, SIOR, managing partner at Avocat Group in Tampa, Fla., knows firsthand how climate-related disasters can devastate property, businesses, and most importantly – a community. “I learned a lot about storms last year after two hurricanes hit the Tampa area,” he says, “ and (from a real estate perspective) the most important lesson learned is that you’ve got to know what's included and what's not included in your insurance policy. Everyone is going through their policies with a fine-tooth comb now, but for many people, it's too late.”
The Deloitte Center for Financial Services projects the average monthly cost of insurance for a commercial building in the United States would increase from $2,726 in 2023 to $4,890 in 2030, while the top ten states with the greatest extreme weather risk could see premiums nearly double, from $3,077 to $6,062 per month. Sultenfuss recommends that property owners engage an insurance expert to review their insurance policy before they sign it, “to confirm that what you need to be covered is covered because it’s different for every business. There’s no one-size-fits-all, and it's better to have it and not need it than need it and not have it.”
His second recommendation for property owners is to have a building inspector thoroughly inspect the property for issues that could lead to problems during an extreme weather event. One 10,000-square-foot occupier of a multi-tenanted 200,000-square-foot industrial building in the Tampa market was using an 8’ x 10’ roll-up door (as opposed to a hurricane-rated industrial commercial door) for his loading dock. When Hurricane Milton hit, “the door ended up coming off its track, and with the wind, it became a metal whip and just started destroying the inside of the warehouse space, ruining tens of thousands of square feet of space, all because one door was not hurricane-rated,” says Sultenfuss.
He also advises his clients, particularly those with mission-critical operations like medical users and data centers, to incorporate redundancies in their operations, “whether that’s power or data or whatever. Many of our clients are in the medical field, so they can’t afford (to have systems) go down,” he stresses. He also encourages those clients to develop contingency plans for temporary space in the event of a climate event. “Sometimes you can get an agreement for temporary office space with a Regus or another operator, but warehouse space is a little trickier,” says Sultenfuss.
“We're trying to take a targeted approach with all of our clients to look at their facilities,” he says. “It’s no longer just about the rent and availability and demographics. It’s also about the potential hazards from natural disasters. If it wasn't on the top of some people's minds before, it’s becoming that way more and more.”
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