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The impact of Hurricanes on the value of commercial real estate

Author

Listed:
  • Jeffrey D. Fisher

    (Homer Hoyt Institute)

  • Sara R. Rutledge

    (SRR Consulting)

Abstract

Commercial real estate investors prefer coastal, gateway, markets for liquidity, demand density, and durable returns. Yet, these areas are more vulnerable to the effects of climate change from more intense and frequent weather events such as hurricanes and typhoons as well as to gradual changes such as sea-level rise. Recognition is growing of the risks that these events pose to investment performance, but little is known about how this risk has impacted property values and returns when an event such as a hurricane occurs. This is the first study to analyze the impact on property values and returns from hurricanes causing the most significant damage by value over the past 30-plus years throughout the nation. Using individual property data from the National Council of Real Estate Investment Fiduciaries database, we find a significant impact on the value and rates of return, after accounting for any additional capital expenditures for repairs, for properties that are in areas impacted by a hurricane, relative to areas that were not impacted by a hurricane. These impacts vary by property type and can last for several years after the hurricane hit land in the area.

Suggested Citation

  • Jeffrey D. Fisher & Sara R. Rutledge, 2021. "The impact of Hurricanes on the value of commercial real estate," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 56(3), pages 129-145, July.
    • Handle: RePEc:pal:buseco:v:56:y:2021:i:3:d:10.1057_s11369-021-00212-9
    DOI: 10.1057/s11369-021-00212-9
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    References listed on IDEAS

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    1. Donald Bleich, 2003. "The Reaction of Multifamily Capitalization Rates to Natural Disasters," Journal of Real Estate Research, American Real Estate Society, vol. 25(2), pages 133-144.
    2. Kevin M. Simmons & Jamie Brown Kruse & Douglas A. Smith, 2002. "Valuing Mitigation: Real Estate Market Response to Hurricane Loss Reduction Measures," Southern Economic Journal, John Wiley & Sons, vol. 68(3), pages 660-671, January.
    3. Sean P. Salter & Ernest W. King, 2009. "Price Adjustment and Liquidity in a Residential Real Estate Market with an Accelerated Information Cascade," Journal of Real Estate Research, American Real Estate Society, vol. 31(4), pages 421-454.
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    Cited by:

    1. Justin Contat & Caroline Hopkins & Luis Mejia & Matthew Suandi, 2023. "When Climate Meets Real Estate: A Survey of the Literature," FHFA Staff Working Papers 23-05, Federal Housing Finance Agency.

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