In the past several weeks, Texas, Florida, Puerto Rico and the Gulf Coast were hit by successive storms that brought staggering destruction. In the aftermaths of hurricanes Harvey, Irma, Maria and Nate, the watchword is resilience. Storms of this magnitude — Harvey brought more than 50 inches of rain to parts of Houston, while Irma saw wind speeds of 180 miles per hour — could become more common as Earth’s climate changes, which means real estate investors need to be prepared to handle such events.
In Houston, heavy rains caused severe flooding even after Harvey was downgraded to a tropical storm. Moody’s Investors Service has estimated the damage at $81 billion to $108 billion. Houston is the fourth-largest metro area in the country, with more than 6.7 million people, many of them newly moved to the fast-growing region.
The storm has given a sudden shock to the real estate market. Although Houston had seen soft property fundamentals the past few years, with high vacancy rates across property types, the loss of a significant portion of its real estate is likely to mean rising rents. According to Reis, apartment rents could rise 10 percent in the next few months, while office rents may increase between 5 percent and 10 percent.
Reis notes the damage from Hurricane Harvey disproportionately affected its residential housing stock, with less damage to its commercial real estate. CBRE Research writes, “Nearly all of Houston’s office buildings escaped the worst flooding.”
Parkway Inc., a Houston-focused REIT with 19 class A buildings totaling 8.7 million square feet, reported “minimal damage” resulting from Hurricane Harvey. A statement from the company read, “The properties maintained power throughout the storm and remained accessible to our customers as needed at all times. We expect that all damage will be insurable under our existing insurance policies, subject to a nominal deductible.”
In June, Parkway agreed to be acquired by the Canada Pension Plan Investment Board for $1.2 billion, subject to shareholder approval, and the deal continues to be set to close in the fourth quarter.
In early September, Hurricane Irma left a wide path of destruction through the Caribbean and struck the Florida Keys as a Category 4 hurricane (meaning the continental United States experienced back-to-back Category 4 hurricanes — the first time since modern recordkeeping began that two storms of that intensity struck the United States in a single season). More than 6 million people evacuated throughout the state of Florida, and more than 7 million overall. The storm is forecast to have caused approximately $100 billion in damage, according to AccuWeather.
Hurricane Irma was the most powerful Atlantic storm since Hurricane Dean in 2007, but it may not hold that crown for long, as the coming decade could deliver more storms of greater magnitude.
Loretta Clodfelter (l.clodfelter@irei.com) is editor of Institutional Real Estate Americas.