THE CLIMATE-RELATED RISKS AND OVERALL REWARDS OF CRE IN SOUTH FLORIDA

SOUTH FLORIDA ISN’T ALL SUNSHINE AND WARM WEATHER, AS THE CLIMATE BRINGS BOTH POTENTIAL RISKS AND REWARDS TO CRE INVESTORS.

There’s a lot to like about CRE investment in South Florida, including warm weather, an attractive lifestyle, low taxes, and strong economic and population growth. In particular, the area is currently doing an excellent job of attracting both startups?and financial giants, including Goldman Sachs, Blackstone, and Elliott Management. Many big companies and multinationals want to be in the area, and Miami alone has a startup density of?247.6 per 100,000?people, making it the nation’s second most entrepreneurial city.?

The climate is part of the reason for this growth. After all, where else in the country can you find a business-friendly region with average December highs of?79 degrees?

But aspects of the climate—in particular, extreme weather and climate change—also create some risks in South Florida that investors should know about and prepare for. Let’s take a look:

SOUTH FLORIDA CRE RISKS

We know that South Florida is beautiful and enjoys fantastic weather. But one drawback of living in a sub-tropical climate is the prevalence of significant storms and the possible impacts of climate change. Some issues to consider include:

• Hurricanes.?The?potential for hurricane damage?is something CRE investors must prepare for, especially as properties get closer to the coast. The 2017 storm season brought $306 billion worth of damage to the state, and 2020 experienced 21 individual storms that caused at least $1 billion in damage each. However, the frequency of severe storm hits is less than one might think from media attention, and there are?proactive steps property owners can take to protect their investments.
• Climate change.?Climate scientists estimate that the average temperature in Florida has increased by over one degree Fahrenheit in the last 100 years. It’s believed this warming is causing sea levels to rise one inch per decade and possibly causing more precipitation during significant storms. The result is a greater risk of flooding in inland areas, which could be a risk for specific properties.
• Insurance costs.?Hand-in-hand with hurricanes and flooding is the increased cost of insuring buildings in South Florida. The Office of Insurance Regulation in Florida has approved almost 100?insurance rate increases?in 2021, a move that will likely bring double-digit rate increases to many parts of the state. This move follows?20%?commercial property insurance upticks in 2020, as insurance companies protect their bottom lines against massive losses they’ve incurred because of increased storm activity. Note that insurance is getting more expensive across the country, however.

THE REWARDS OF CRE INVESTMENT IN SOUTH FLORIDA

Despite the risks,?private and government efforts are underway to mitigate many of them long term. And Florida maintains a massive amount of upside because the state’s economy is booming, and businesses?really?want to be here. The rewards include:

• Weather-related traffic. Investing in areas that businesses find desirable is always beneficial because it makes it much easier to find organizations to lease properties. The weather (and lifestyle) in South Florida continues to attract many tenants looking to operate from the area, and the hospitality industry is consistently among the strongest in the US.?
• Expanding economy. Florida’s economy is growing robustly, partially thanks to its climate and numerous tourist destinations. In 2021, state GDP is on pace to reach a record high of nearly?$970 billion, despite a COVID-related 2.9% decrease between 2019 and 2020. The economy is almost fully recovered from the pandemic.?
• Growing population. There are many reasons for Florida’s growing population, as its lack of state income tax, relaxed pandemic restrictions, warm weather, and abundance of employment opportunities put it high on many people’s lists when moving or visiting. This population increase, which could see the state attract?five million?new residents by 2030, should lead to much more industry and increased opportunity for CRE investment.

MAKING SMART INVESTMENTS

Various factors determine if a particular investment is advisable. And South Florida’s unique climate brings both manageable risks and immense rewards, each of which should be carefully weighed.

Morris Southeast Group can provide insight into South Florida’s commercial real estate market, including information on the area’s climate-related risks and steps to address them. Contact us at 954.474.1776 for more information. You can reach out to Ken Morris directly at 954.240.4400 or?[email protected], too.

You can read the original article at https://www.morrissegroup.com/cre-climate-risks/