Real Estate Industry Trends 2023

In a troubled market, risk management will help real estate operations thrive.

Learn about real estate market trends and insurance rate changes for 2023.

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Real Estate

HUB 2023 Outlook

What's covered...

Setting the Scene

What to Expect in 2023

Make a Plan

About HUB

Profitability

Vitality

Resiliency

Climate Change

Lean into risk

Safety first

Meet the Experts

HUB Real Estate

Setting the Scene

The cost of everything will rise

Higher interest rates and inflation will affect the cost of borrowing, construction, maintenance and insurance. At the same time, costlier natural disasters — such as the derecho that hit Ontario and Quebec last May — and remote work becoming permanent will transform how investors value their real estate holdings.

What to Expect in 2023

Inflation reached a 39-year high in 2022, driving up interest rates, which will remain high and possibly increase in 2023. Rising construction costs, as well as more frequent and extensive property claims, will exacerbate market challenges and weaken profits. Real estate owners and operators who understand their risks and embrace creative market solutions will have better coverage options at lower costs.

Make a Plan

Download our 2023 Real Estate Outlook and Insurance Market Rate Report to see what to expect in the coming year.

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Be Prepared

Make safety a tenet of the organization.

Higher interest rates and increasing catastrophes have driven up risk for real estate owners and investors. A higher deductible reduces premiums and improves experience rating. Ask your HUB broker about what kind of deductible meets your risk profile and budget.

Analyze loss trends.

Improve construction and properly value replacement costs.

Lean into risk.

Litigation against real estate companies is rising. But with extra training and risk management practices for all properties, you can guard against litigation risk and get better insurance options at lower rates. A little prevention can save millions.

Make safety a tenet of the organization.

Understand the root causes of large losses and explain to carriers what you’re doing to prevent future claims. Develop a strategy with HUB to determine the best time and frequency to review alternative markets.

Analyze loss trends.

Improve construction and properly value replacement costs.

Lean into risk.

Make safety a tenet of the organization.

Improve construction and properly value replacement costs.

Whether it’s rebuilding or new construction, it’s important to use materials and construction techniques that will minimize losses later. Also, check with an appraiser for current replacement costs and submit correct loss of rents for business interruption values to save on premiums.

Lean into risk.

Make safety a tenet of the organization.

Improve construction and properly value replacement costs.

Analyze loss trends.

Meet the Experts

Chief Sales Officer

Real Estate Practice

James Stuart

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Risk Advisor

Lindsay Shapiro

Real Estate Practice

Linkedin Profile

Risk Advisor

Dave Barthel

Real Estate Practice

Linkedin Profile

Expert

Brent Pavan

Real Estate Practice

Linkedin Profile

Real Estate

When you partner with us, you’re at the centre of a vast network of experts who will help you reach your goals. For more information on how to manage your insurance costs, reduce your risk and take care of your employees, talk to a HUB real estate insurance specialist.

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real estate clients

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insurance policies managed

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In both the U.S. and Canada, pension funds have pulled back on office building investments, with private real estate holdings in offices falling 11% in 2021 compared with the three years prior. Holdings in the retail space fell 7% over the same period. These factors will make an already onerous insurance market even more difficult in 2023, with carriers pulling back on capacity and significantly increasing insurance rates, further squeezing profits.

Real estate investors will see lower profits, with interest.

Several years of high rebuilding costs and outdated property valuations, rising crime, chronic inflation and high interest rates will continue to hurt real estate profits. Climbing interest rates have made loans and mortgages more expensive; rates are likely to stay high and increase in 2023. Real estate owners and operators 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. The shift to remote work will continue to pressure commercial real estate profits. Downtown Toronto office occupancy remained below 30% in September 2022, and the national vacancy rate for office buildings stands at just 13.8% in the third quarter 2022.

4. Wall Street Journal, “Pension Funds Are Selling Their Office Buildings,” August 25, 2022.

Climate Change

Resiliency

Vitality

Profitability

Climate Change

Resiliency

Vitality

Profitability

Just as troubling: The labour shortage is affecting renters’ ability to hire workers, and the rising minimum wage could add to the financial burden. In the worst of the COVID-19 pandemic, lessors were going out of business or not paying rent, but today they may not be able to find enough workers to stay viable or expand, resulting in less rental income for owners. Although real estate owners and operators can do little for the overall labour shortage, they can improve their own recruiting and retention through personalized benefits based on data analytics. Doing so will improve employee engagement and worker loyalty.

Although real estate owners and operators can do little for the overall labour shortage, they can improve their own recruiting and retention through personalized benefits based on data analytics. Doing so will improve employee engagement and worker loyalty.

Shrinking workforce, shrinking revenue.

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. The labour shortage is also affecting real estate indirectly. Construction companies are facing delays because they can’t find enough workers. Most real estate operations hire vendors to handle maintenance, security and cleaning services, but they’re having trouble with staffing as well. Those vendors and construction companies are raising wages to attract and retain workers, with costs likely to be passed on to real estate owners and operators. Just as troubling: The labour shortage is affecting renters’ ability to hire workers, and the rising minimum wage could add to the financial

5. Northspyre, “Commercial Real Estate’s Most Critical Issue: A Labor Shortage,” September 1, 2022.

Climate Change

Resiliency

Vitality

Profitability

Also, properties valued at less than $100 per square foot will have difficulty getting coverage. Higher values will cost more to insure, but underwriters will decline to quote properties that are incorrectly valued. To get preferred rates, real estate owners and operators will need to show detailed data on renovations and maintenance, such as new roofing, electrical systems and plumbing. Otherwise, insurers will assume that buildings have no renovations and will price insurance accordingly.

Carriers are more likely to insure properties where the owners or operators are actively working to prevent damage or liability claims. Underwriters will favour best-in-class properties and will require current building valuations before even considering risks. Also, properties valued at less than $100 per square foot will have difficulty getting coverage. Higher values will cost more to insure, but underwriters will decline to quote properties that are incorrectly valued. To get preferred rates, real estate owners and operators will need to show detailed data on renovations and maintenance, such as new roofing, electrical systems and plumbing. Otherwise, insurers will assume that buildings have no renovations and will price insurance accordingly.

Rising claims and insurance rates threaten resiliency.

In addition to the financial and economic conditions threatening their business model, real estate owners and operators will face a difficult insurance market. Commercial property-casualty insurance is projected to increase 5% to 10% for properties not in catastrophe-prone geographies. The rise will be due to carriers’ increased scrutiny of insurance-to-value, rising construction costs and supply chain disruptions. Expect coverage for habitational and multifamily properties to rise the same amount, although rates of properties with catastrophe risks will see much higher increases. There is good news for top properties with lower risk profiles. For instance, underwriters are still offering coverage for fire-resistant Class A high-rise office buildings. As insurers are competing for this business, best-in-class risks will find good coverage options at good rates.

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Climate Change

Resileincy

Vitality

Profitability

If a property does suffer a loss, underwriters are more likely to consider coverage if they have been rebuilt with proven construction materials to mitigate against future losses. Parametric insurance also may be available in areas where property insurance capacity is scarce. Parametric policies pay out a set amount based on the magnitude of the event, even if there is no loss for the insured.

properties are consistently and properly maintained will be crucial to reduce risks. If a property does suffer a loss, underwriters are more likely to consider coverage if they have been rebuilt with proven construction materials to mitigate against future losses. Parametric insurance also may be available in areas where property insurance capacity is scarce. Parametric policies pay out a set amount based on the magnitude of the event, even if there is no loss for the insured.

Weather disasters will take a bite out of real estate.

Catastrophes will also weigh heavily on insurers’ minds, with global catastrophe losses in 2021 totalling US$105 billion and estimated insured losses reaching US$35 billion in the first half of 2022 alone. And that does not account for Hurricane Fiona, which slammed into the Atlantic Coast in September 2022 and caused an estimated $660 million in insured damage and an unknown amount of uninsured damage from wind, storm surges, flooding and widespread power outages. Natural catastrophes were the second-leading cause of business insurance losses globally from 2017 to 2021, with a total value of more than US$14 billion. Coverage for catastrophic perils in Canada will rise 10% in low-hazard areas, while in high-hazard areas, rates could increase 20% to 50%. Investing in stronger building materials that can withstand geographical hazards while ensuring

7. Swiss Re Institute, “Floods and storms drive global insured catastrophe losses of USD 38 billion in first half of 2022, Swiss Re Institute estimates,” August 2, 2022.

HUB real estate specialists will work with you to develop a tailored strategy that will protect the bottom line, support your workforce and build resiliency for 2023. Here are some initial considerations:

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Be prepared. Talk to a HUB advisor today.

HUB

Analyze loss trends

Improve construction

1. Collier’s Canada, National Market Snapshot, September 28, 2022.

3. CTV News, “Bank of Canada hikes interest rate again, predicts potential recession in 2023,” October 26, 2022.

2. CBC, “Inflation rises again, to new 39-year high of 8.1,” July 20, 2022.

6. CBC, “Ontario minimum wage hike kicks in; most workers now make at least $15.50 per hour,” October 1, 2022.

8. Cision, “Hurricane Fiona causes $660 million in insured damage,” October 19, 2022.

9. Allianz, “Fire, natural catastrophes and faulty workmanship top causes of insurance claims for business: Allianz,” July 19, 2022.