Insurance expenses accelerate. Hurricane Idalia made landfall in late August on Florida’s Gulf Coast as a Category 3 tropical cyclone. Idalia brought violent winds, rain and flooding to the region, before hitting Georgia and the Carolinas. The storm surge displaced communities and significantly damaged personal and commercial real estate assets, along with public infrastructure. While the total cost is still being assessed, Idalia occurred just 11 months after Hurricane Ian caused $112 billion in damages to nearby communities southwest of Idalia's landfall. Beyond the impact to real estate, these and other dangerous weather events have placed meaningful financial risk on living, working and investing in areas subject to extreme climates. Attempting to account for the increasing frequency and impact of natural disasters, insurers have drastically raised premiums over the past few years in states like Texas, California and Florida. Influenced by Hurricane Ian, the average per-unit cost of multifamily insurance across Jacksonville, Tampa-St. Petersburg, Orlando and Miami-Dade climbed by more than 38 percent year-over-year in June. These rates are likely to accelerate further here, as well as in other cities affected by Hurricane Idalia, including Charleston, Wilmington and Savannah.

Southeast's population surge may begin to normalize. Even before Idalia's impact on insurers in the region, estimated single-family premiums in Florida had already risen to $6,000 per year. The expense, which is nearly four times the U.S. mean, may weigh on the future pace of net in-migration — a key driver for economic growth in the southeast region and an appealing factor for property investment. Of the 10 major metros with the strongest net in-migration from 2020 to 2022, half were located in the Carolinas, Georgia or Florida. In the retail sector, the population-induced upgrade to local consumer spending helped propel average asking rents up by more than 18 percent in metros like West Palm Beach and Jacksonville over the span. However, more expensive housing costs — exacerbated by elevated mortgage rates and climbing homeowners' insurance — may soften this trend moving forward. As this dynamic unfolds over time, the character of commercial real estate investment opportunities in the region may change.

Expense-pressured owners may be more inclined to sell. An ongoing climb in insurance costs may stir listings from owners facing tighter margins. This could spark deals among sellers looking to capture proceeds from recent price appreciation and well-capitalized buyers increasing their regional holdings. In the multifamily sector, mean per-unit prices across each major metro in the Carolinas, Georgia and Florida over the year ended in June were up by at least 30 percent over the 2019 mark. Still, regional deal flow may remain subdued. Prospective buyers may underwrite conservatively to properly absorb rising insurance costs, which could place upward pressure on yields and hinder deal-making. Meanwhile, some institutional funds that primarily target the southeast may diversify away from coastal markets to reduce risk

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*The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guarantee, express or implied, may be made as to the accuracy or reliability of the information contained herein. Sales data includes transactions sold for $1 million or greater unless otherwise noted. This is not intended to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be considered as investment advice. Sources: Marcus & Millichap Research Services; Real Capital Analytics; National Centers for Environmental Information; U.S. Census Bureau; National Oceanic and Atmosphere Administration; U.S. Department of Commerce; Insurance Information Institute