Property Insurance Surges in the Sun Belt

While insurance rates typically increase gradually over time, new research from Moody’s suggests that premium hikes over the past six years have become increasingly challenging—and even prohibitive—for commercial real estate investors.

From 2017 to 2023, insurance costs surged across all asset types. But some markets, particularly those in the Sun Belt, saw insurance costs grow by more than 20%, far outpacing the national average growth of commercial real estate properties of 9.7% over the same period.

Moody’s analysis revealed the following national averages for compounded annual growth rates (CAGR) of insurance expenses:

• Multifamily: 13.3%
• Office: 7.3%
• Retail: 7.8%
• Industrial: 9.7%
• Hotel: 10.3%

“There is a wide distribution of insurance cost growth around the national average,” Moody’s noted. “Among all properties we examined, the majority experienced insurance cost CAGRs above 10% from 2017 through 2023. Additionally, most properties across each asset type saw insurance premium CAGRs over 5% during the last six years.”

The report highlighted that for multifamily properties, insurance expense growth from 2017 to 2023 significantly outpaced rent growth. In Cincinnati, for example, insurance expense growth reached 27.2%, while rent growth was only 5.1% over the same period. Similarly, Kansas City, Sacramento, San Antonio, and Houston saw insurance expense growth rates exceeding 19%, with rent growth ranging between 4.1% and 5.2%.

Moody’s warned that rising insurance costs are not limited to metros with increasing rents. Climate risks, particularly in states like Florida and California, have also contributed to these costs. However, despite differing market dynamics, rapidly rising insurance premiums have been observed across the country.

Although Moody’s could not pinpoint a single factor driving the widespread increase in insurance costs, it found that the highest median rates of increase are concentrated in the Sun Belt, Texas, and California. Moody’s cautioned that growing claims from climate-related hazards, along with legal and operational challenges tied to local regulations, are reshaping the primary insurance market. This, in turn, could create barriers to entry for real estate investors.