Summary

Rising property insurance costs and declining availability have become significant concerns, driven by natural disasters, inflation, and tighter market conditions. This dynamic is particularly acute in the commercial real estate (CRE) insurance market, where looser regulatory constraints and a sensitivity to reinsurance costs have led to sharp premium increases. First Street’s Economic Research Team analysed 25 years of commercial real estate performance data from the National Council of Real Estate Investment Fiduciaries (NCREIF) across 120 major U.S. metro areas and four sectors: multi-family, retail, office, and industrial. The report identifies four key indicators: premium levels, annual premium growth rates, pricing volatility, and insurance burden relative to net operating income (NOI).

Analysis finds that climate risk is a consistent predictor of elevated insurance pressure. Markets with higher exposure to physical hazards face faster premium growth, higher average costs, and more substantial burdens. Conversely, low-climate risk markets have remained relatively stable, even during the recent hard market cycle.

Seven key insurance trends reshaping the CRE landscape

Average CRE insurance premiums have increased by 154% since 2017, far outpacing input cost inflation of 32.8% and construction material inflation of 48.2%. Multi-family premiums rose 209% and industrial 183%. Trends in premiums across the CRE sector have grown 1.6 times more volatile since 2017 compared with long-term trends since 2000. This escalation has altered cost structures and margin assumptions, introducing budgeting uncertainty and complicating lease negotiations.

The share of NOI consumed by insurance expenses, known as the insurance burden, has more than doubled from 1.9% in 2017 to 4.1% in 2024. For multi-family properties, where costs often cannot be passed to tenants due to lease structures and regulations, this burden now exceeds 6.6% of NOI. Asset values are also eroding; on average, CRE properties in high climate risk markets are valued 16.9% lower than comparable properties in low-risk areas, with the largest gap of 25.4% seen in the multi-family sector.

Examining the escalating costs and financial strain of CRE insurance

Insurance costs in the CRE sector have increased by 157.8% since 2017, the costliest billion dollar disaster year on record. This has taken the price of insurance for industrial buildings from $0.08 per square foot in 2017 to $0.24 in 2024. The average cost for multi-family buildings has risen from $286 per unit to $879 over the same period. While CRE insurance costs grew at a steady annual rate of 4.6% from 2000 to 2017, the pace of growth tripled to 14.3% between 2017 and 2024.

The relative share of insurance expenses as a part of total commercial property expenses has over doubled, climbing from 3.3% in 2017 to 6.8% in 2024. Volatility in insurance pricing, measured by the coefficient of variation (CV), rose from 21.3% between 2000 and 2017 to 36.7% between 2017 and 2024. The highest levels of volatility since 2017 were observed in multi-family and industrial asset types, where prices deviated from their average by 43.9% and 40.3%, respectively.

The role of reinsurance, climate disasters, and the hard market cycle

The recent escalation in premiums reflects a broader hardening of the insurance market, marked by reduced underwriting capacity and rising rates. Extreme weather events have caused more than $1.3 trillion in damages since 2017. Reinsurance pricing has risen by an average of 11% annually, with a cumulative increase of 94.4% through 2024. Commercial insurance pricing closely mirrors these reinsurance trends because it is largely exempt from state rate regulation.

The Pearson correlation coefficient between insurance costs and the Guy Carpenter Rate on Line (ROL) Index rose from 0.77 (2000-2017) to 0.99 (2017-2024), indicating an almost one-to-one movement. However, the first quarter of 2025 marked the first break in this trend, with reinsurance tentatively falling by 6%, signaling a potential inflection point toward market softening.

How climate risk amplifies local insurance pressure

Local market patterns indicate that effects are more pronounced in areas with elevated climate risk exposure. High-risk markets consistently experience higher premium levels and faster growth. Multi-family properties in high-risk areas average 68.9% higher premiums than those in low-risk areas. Industrial insurance costs in high-risk areas grew at rates 202.6% higher than in low-risk areas and imposed a 141.5% greater burden relative to NOI. The largest difference in volatility was observed in the retail sector, where costs were 38.6% more volatile in high-risk areas.

Market-level rankings

Snapshots reveal unevenly distributed insurance pressure. Among the top five risky metros for industrial CRE, CA-Vallejo-Fairfield has a 2025 price of $0.29 per square foot and a 5.90% burden ratio. For office CRE, FL-Miami-Miami Beach-Kendall has a price of $0.86 and a 5.40% burden ratio. In the multi-family sector, LA-Baton Rouge exhibits a 44.10% burden ratio and 16.40% annual growth. These findings underscore the importance of incorporating insurance and climate data into underwriting and portfolio risk management strategies.

The First Street insurance factor

Asset managers apply standardised allocation methods to break down bundled portfolio insurance costs at the individual property level. First Street uses this reporting to create an Insurance Factor risk score that identifies patterns across U.S. property markets. This methodology uncovers early warning signals of market stress, such as sharp year-over-year swings or reactive repricing. This provides investors with a framework to evaluate and respond to insurance risk across diverse portfolios.