Insurance used to be a rounding error in most CRE pro formas – a predictable, boring line item that grew a couple of percentage points a year and nobody thought much about. That assumption has broken. Commercial property insurance premiums have climbed 88% nationally over the past five years, reinsurance costs behind the scenes have nearly doubled, and in the highest-risk states, premiums are now rising at four times the pace of the rest of the country. The effects have stopped being an operating expense story and started being a valuation and financing story: climate-exposed markets are trading at measurably lower prices, and lenders are now underwriting physical risk directly into loan terms. For sponsors and lenders across every property type, insurance has quietly become one of the most consequential line items in the entire deal.

The Setup: An 88% Increase That Isn’t Slowing Down

Commercial real estate insurance premiums have soared 88% across the U.S. over the last five years, according to JLL – and the trajectory ahead looks steeper, not flatter. Deloitte’s forecasting puts the average monthly cost to insure a commercial building at $4,890 by 2030, up from $2,726 in 2023, an 8.7% compound annual growth rate. That builds on a decade of already-elevated growth: average insurance costs nearly doubled between 2013 and 2023, rising from $1,558 to $2,726 per building per month.

Insurers traditionally priced in annual increases of just 2% to 3%. The gap between that historical norm and what property owners are actually experiencing now is the whole story – and it explains why so many owners feel blindsided by renewal notices that look nothing like what they budgeted for.

Why Premiums Are Rising Faster Than Losses

The mechanics behind this are worth understanding because they explain why the trend isn’t likely to reverse quickly. Global reinsurers – the companies that backstop primary insurers – have nearly doubled their own rates over the past several years, according to Brookings Institution research, as cumulative replacement costs and catastrophe claims have mounted. Because commercial and non-owner-occupied investment property policies are far less regulated than residential lines, those reinsurance cost increases pass through into CRE premiums almost immediately.

Critically, much of the current repricing is forward-looking rather than backward-looking: carriers are pricing coverage against climate-adjusted loss scenarios, not historical loss experience, which means premiums in coastal, wildfire, and flood-exposed zones have risen 30% to 50% or more over just the past two to three years – increases that don’t always match the actual claims history of any individual property. Rising construction and replacement costs, driven partly by tariffs on imported materials, are compounding the effect by pushing up the insured value base that premiums are calculated against in the first place.

“Physical risk is now part of the bundle of risk we evaluate in real estate.”

The NOI Squeeze: Where It Hurts Most

First Street’s research shows the average insurance burden across CRE asset classes has doubled as a share of net operating income between 2017 and 2024. Multifamily has taken the steepest hit, facing the sharpest increase of any property type because operators have limited ability to pass rising insurance costs through to rent-stabilized or rent-sensitive tenants. Industry surveys found multifamily insurance costs rising 10% to 12% annually nationwide in 2024 alone – a pace that has consistently outrun both general inflation and rent growth.

Industrial faces a similar but geographically concentrated version of the problem: insurance rates on industrial properties in high-risk areas have risen at three times the rate of low-risk markets, and insurance now consumes 5.9% of industrial NOI in high-risk markets compared to just 2.4% in low-risk markets. Office tells the same story through a different lens – insurance eats roughly 5% of NOI for investors in Miami and Fort Lauderdale, compared to just 1.4% in Nashville.

The Valuation Effect: A Measurable Discount

The clearest evidence that this has moved beyond an operating expense issue is in pricing itself. First Street’s data, shared with Bisnow, shows commercial real estate in high climate-risk markets trading at market values 16.9% lower than comparable properties in lower-risk markets – a gap driven directly by the cost and volatility of insurance. Fort Lauderdale is a clean example: office values there fell 17% between 2020 and 2024 as insurance costs doubled over the same period.

The picture isn’t uniformly negative, though, and that nuance matters for underwriting. Miami, despite carrying some of the highest insurance costs in the country, has continued to attract corporate headquarters relocations and rising rents, as demand fundamentals in certain submarkets outweigh the insurance drag. The lesson isn’t that high-risk markets are uninvestable – it’s that insurance cost has become a genuine, quantifiable underwriting variable that can no longer be waved away as a minor expense line.

What the Research Is Showing

Four research organizations tracking different dimensions of this story – global real estate services, climate risk analytics, regional market data, and macro reinsurance economics – are all converging on the same conclusion: this is a structural repricing, not a temporary spike.

Where the Insurance Squeeze Is Bifurcating

The national averages obscure a market that is dividing sharply by geography, asset type, and how well a property can demonstrate physical resilience.

What HB Capital Is Seeing in the Field

1. Insurance costs are now a line item lenders scrutinize as closely as debt service coverage, and sponsors underwriting new acquisitions need current, market-tested premium quotes rather than trended historical figures.

2. Demonstrated physical resilience – hardened roofing, flood mitigation, updated electrical and fire suppression systems – is increasingly a financing advantage, not just an insurance one, as lenders factor climate risk directly into loan terms.

3. Sponsors in high-risk geographies are having real success by pairing strong local demand fundamentals with proactive resilience investments, rather than either avoiding those markets entirely or ignoring the insurance math.

Executive Takeaway

Insurance has moved from a background operating expense to a front-line underwriting variable in commercial real estate, and the data shows no sign of that reversing soon. Premiums are rising faster than losses because carriers are pricing forward-looking climate risk, not historical claims, and that dynamic is now measurably affecting property values, NOI margins, and lending terms across every major asset class. For sponsors and capital allocators, the response isn’t to avoid climate-exposed markets wholesale – Miami’s continued strength despite high insurance costs proves that isn’t necessary – but to underwrite insurance with the same rigor applied to debt and rent growth, and to treat physical resilience as a genuine value-add lever rather than an afterthought.

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