Seeking stability in a market going sideways.
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
Profitabiility
Vitality
Resiliency
Climate change
Lean into risk
Safety first
Meet the Experts
HUB Real Estate
Setting the Scene
Risk and costs will increase.
Higher interest rates and inflation will affect the cost of borrowing, construction, maintenance and insurance. At the same time, costlier natural disasters — Hurricane Ian being a harbinger — and remote work becoming permanent will transform how investors value their holdings.
What to Expect in 2023
Inflation reached a 40-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 claims, will worsen market challenges and weaken profits. Real estate owners and operators who 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 materials and construction.
Lean into risk.
Lean into risk.
Nuclear verdicts against real estate companies are exploding. Make safety a tenet of the organization, with extra training and risk management practices for all properties. 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.
Analyze loss trends.
Improve materials and construction.
Lean into risk.
Make safety a tenet of the organization.
Improve materials and construction.
Whether rebuilding or new construction, it’s important to use materials and construction techniques that will minimize losses later on. Hail-resistant roofing and siding, fire-resistant building materials and automatic plumbing shut off controls will go a long way in lowering claims and premiums.
Lean into risk.
Make safety a tenet of the organization.
Improve materials and construction.
Analyze loss trends.
Meet the Experts
Practice Leader
Real Estate Practice
James Stuart
Linkedin Profile
Risk Advisor
Lindsay Shapiro
Real Estate Practice
Linkedin Profile
Expert
Grant Allen
Real Estate Practice
Linkedin Profile
Expert
Aimee Johnson
Real Estate Practice
Linkedin Profile
Real Estate
When you partner with us, you’re at the center 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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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 will see lower profits, with interest.
Several years of high rebuilding costs and outdated or inaccurate property valuations, rising crime, chronic inflation and high interest rates will continue to hurt real estate profits.
Climbing interest rates have made loans and refinancing more expensive; rates are likely to stay high and increase in 2023. 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.
The shift to remote work will continue to pressure commercial real estate profits. The national vacancy rate for office buildings rose steadily throughout the first half of 2022, standing at 18.4% in the third quarter 2022. 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.
2. Wall Street Journal, “Fed Raises Interest Rates by 0.75 Percentage Point for Third Straight Meeting,” September 21, 2022.
Climate Change
Resiliency
Vitality
Profitability
Climate Change
Resiliency
Vitality
Profitability
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paying rent, but today they can’t get 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 labor shortage, they can improve their own recruiting and retention through personalized benefits based on data analytics. Ultimately, this will create quality employee experiences (QEX) that improve employee engagement and workforce loyalty.
Shrinking workforce, shrinking revenue.
Real estate companies are struggling to find 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 labor shortage also is 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 vendors are 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 labor shortage is affecting renters’ ability to hire workers. In 2020, lessors were going out of business or not
5. Northspyre, “Commercial Real Estate’s Most Critical Issue: A Labor Shortage,” September 1, 2022.
Climate Change
Resiliency
Vitality
Profitability
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may drive carriers away from insuring sectors such as older multi-family properties or properties in high-crime areas.
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.
In order to get preferable rates, real estate owners and operators will need to have detailed data on renovations and maintenance, such as new roofing or plumbing. Otherwise, insurers will assume that buildings have not done renovations and will price insurance accordingly.
Real estate owners will face stubborn challenges to resilience.
In addition to threats from financial and economic conditions, real estate owners and operators will face a difficult insurance market.
Commercial property-casualty insurance is projected to increase as much as 20% in most 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 multi-family properties to rise 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.
Claims litigation also threatens real estate owners as the number of so-called nuclear verdicts (awards of $10 million or more) will increase. These lawsuits, such as one that awarded $43 million because of a crime that happened in the parking lot of a drugstore,
7. Travelers Institute, The Exponential Rise of Nuclear Verdicts, June 29, 2022.
Climate Change
Resiliency
Vitality
Profitability
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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 affect commercial real estate insurance.
Catastrophes will weigh heavily on insurers’ minds, with global catastrophe losses in 2021 totaling $105 billion and estimated insured losses reaching $35 billion in the first half of 2022 alone. And that does not account for Hurricane Ian, which slammed into Florida’s southwest coast in September 2022 and caused an estimated $42 billion to $57 billion of damage from wind, storm surges and flooding.
Coverage for catastrophic perils will rise 20% to 50% in low-hazard areas, while in high-hazard areas, rates could triple. Investing in stronger building materials that can withstand geographical hazards, and ensuring properties are consistently and properly maintained will be crucial to reduce risks.
9. 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.
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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:
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.
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Be prepared.
Talk to a HUB advisor today.
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Be prepared.
Talk to a HUB advisor today.
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Analyze loss trends
Broker transparency
1. Bloomberg, "US Inflation Quickens to 40-Year High, Pressuring Fed and Biden," June 10, 2022.
3. Moody’s Analytics, “2022 Midyear Outlook: Multifamily and industrial flourish, office and retail muddle through”, August 2, 2022.
4. Wall Street Journal, “Pension Funds Are Selling Their Office Buildings,” August 25, 2022.
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6. CRE, “Labor Shortage Strain: Where Have All the Workers Gone?” August 17, 2022.
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8. Insurance Journal, “Insurers for High Crime Areas on Notice after Georgia Court Affirms $43M Verdict,” November 12, 2021.
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10. Business Insurance, “Hurricane Ian: Loss Tally Continues,” October 4, 2022.
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2. Wall Street Journal, “Fed Raises Interest Rates by 0.75 Percentage Point for Third Straight Meeting,” September 21, 2022.
2. Wall Street Journal, “Fed Raises Interest Rates by 0.75 Percentage Point for Third Straight Meeting,” September 21, 2022.
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5. Northspyre, “Commercial Real Estate’s Most Critical Issue: A Labor Shortage,” September 1, 2022.
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7. Travelers Institute, The Exponential Rise of Nuclear Verdicts, June 29, 2022.
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9. 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.
Practice Leader
Real Estate Practice
Chip Stuart
Linkedin Profile
Lindsay Shapiro
Risk Advisor
Real Estate Practice
Linkedin Profile
Grant Allen
Expert
Real Estate Practice
Linkedin Profile
Aimee Johnson
Expert
Real Estate Practice
Linkedin Profile
Practice Leader
Real Estate Practice
Chip Stuart
Linkedin Profile
Lindsay Shapiro
Risk Advisor
Real Estate Practice
Linkedin Profile
Grant Allen
Expert
Real Estate Practice
Linkedin Profile
Aimee Johnson
Expert
Real Estate Practice
Linkedin Profile
Practice Leader
Real Estate Practice
Chip Stuart
Linkedin Profile
Lindsay Shapiro
Risk Advisor
Real Estate Practice
Linkedin Profile
Grant Allen
Expert
Real Estate Practice
Linkedin Profile
Aimee Johnson
Expert
Real Estate Practice
Linkedin Profile
2. Wall Street Journal, “Fed Raises Interest Rates by 0.75 Percentage Point for Third Straight Meeting,” September 21, 2022.
2. Wall Street Journal, “Fed Raises Interest Rates by 0.75 Percentage Point for Third Straight Meeting,” September 21, 2022.
5
5. Northspyre, “Commercial Real Estate’s Most Critical Issue: A Labor Shortage,” September 1, 2022.
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7. Travelers Institute, The Exponential Rise of Nuclear Verdicts, June 29, 2022.
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9. 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.
18.4%
The vacancy rate for office buildings in mid-2022.
2. Wall Street Journal, “Fed Raises Interest Rates by 0.75 Percentage Point for Third Straight Meeting,” September 21, 2022.
Pension funds have reduced their holdings in
11%
7%
office building investments
retail
1. Bloomberg, "US Inflation Quickens to 40-Year High, Pressuring Fed and Biden," June 10, 2022.
Practice Leader
Chip Stuart
Real Estate Practice
Linkedin Profile
Risk Advisor
Lindsay Shapiro
Real Estate Practice
Linkedin Profile
Expert
Grant Allen
Real Estate Practice
Linkedin Profile
Expert
Aimee Johnson
Real Estate Practice
Linkedin Profile
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Moody’s Analytics, “2022 Midyear Outlook: Multifamily and industrial flourish, office and retail muddle through”, August 2, 2022.
Inflation reached a 40-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 claims, will worsen market challenges and weaken profits. Real estate owners and operators who embrace creative market solutions will have better coverage options at lower costs.
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