Flooding’s Impact on CRE Remains After the Water Recedes

When it comes to discussing the property risks posed by extreme weather, the focus is often on single-family residential. However, a report on flood impact from nonprofit First Street Foundation and global engineering firm Arup provides a reminder that commercial properties can be in harm’s way, too. 

Leveraging data from LightBox, the report identifies the economic impact to metropolitan areas and states from lost days of productivity and output caused by damage to retail and office buildings as well as the associated closures due to repair times.  

Titled “The 4th National Risk Assessment: Climbing Commercial Closures,” the report is intended to provide investors, business owners, financial institutions, and economists with crucial data on the extent of flood risk to commercial and multi-unit residential properties and helps to quantify economic loss associated with that risk in ways not previously possible. 

“Business needs consistency and predictability in order to plan, invest, and grow their operations and allow communities to thrive,” said Matthew Eby, founder and executive director of First Street Foundation. “In partnership with Arup, we are demonstrating that American businesses and local economies face much more uncertainty and unpredictability when it comes to the potential impact of flooding on their bottom line than they may realize.

“Flooding that leads to lost days of operation and lengthy repair times for local businesses could have significant broader national and even global economic consequences.” 

The report builds on First Street’s previous work assessing flood risk for individual homeowners. It follows a “first principles of engineering” approach to estimate damage, downtime, and downstream economic effects based on current and future estimates of probabilistic flood projections.

The analysis develops and applies a new methodology for estimating vulnerability by reverse-engineering the structural elements of these buildings and then calculating the likelihood and potential severity of flooding today and over 30 years as associated with a changing climate.  

Among the key findings are the following: 

• A total of 729,699 retail, office, and multi-unit residential properties face risk of flood damage in the contiguous U.S. 
• The annual costs to repair or replace damaged buildings could grow by roughly 25% from $13.5 billion in 2022 to over $16.9 billion by 2052 due to climate change 
• Flood damage to commercial buildings could result in 3.1 million days of lost business operation in 2022 due to repairs, growing to 4 million days by 2051 – an increase of 29% 
• Damage to commercial buildings has both revenue and downstream consequences for metropolitan areas and states. The annualized financial impact to local economies is expected to grow by 26.5% from $49.9 billion in 2022 to $63.1 billion in 2052.