MarketScoop: Storms of the Century
Storms of the Century: Comparing the Costliest U.S. Hurricanes Since 2000 to Predict Damage Amounts for 2017’s Storms
Since 2000, the U.S. has been impacted by a number of catastrophic hurricanes. Six of the 11 named storms in this time frame peaked at the Category 5 level, with another three storms peaking at the Category 4 level, meaning the storms were producing sustained winds of more than 130 miles per hour. Areas along the Gulf and Atlantic Coasts have reported billions of dollars in damage over the years as low-lying coastal areas are subjected to storm surges, and commercial and residential properties, in addition to infrastructure, suffer from wind damage, flooding, and other ill effects caused by these storms. Due to the extensive clean-up required, it takes time to assess the complete impact of each storm and full damage estimates are sometimes not calculated for months.
In an effort to estimate possible damage totals from the two most recent hurricanes, Harvey and Irma, we looked at the correlation between reported damage and the size of the commercial real estate markets in and around the areas where past hurricanes have made landfall.
As illustrated above, there is a correlation between the size of the market and the final amount of damage reported following each hurricane. In all cases, damage outweighs the size of the market, but all storms follow roughly the same trendline. As would be expected, the most devastating storms on record, Katrina and Sandy, hit areas with more than 1.0 billion square feet of commercial property in the vicinity and therefore saw corresponding damage reports become the new record highs: $108 billion and $75 billion respectively. For storms impacting smaller commercial markets like Rita, which made landfall in Sabine Pass, LA – an area with substantially less square footage in the vicinity (29.4 million square feet at the time) – storm damage only totaled $12 billion.
Seeing consistency in these trendlines allows us to speculate on the damage we can expect to see from Harvey and Irma. And while there are many factors that will ultimately influence damage reports, knowing the historical relationship between the size of the market and the amount of damage caused at least provides a starting point.
In the days immediately following Harvey, initial damage estimates for Houston and the surrounding areas were reported around $70 billion. But given the tremendous size of the markets impacted, we expect to see final damage reports reach at least $100 billion, and probably fall closer to $150 billion, which would push Harvey to the top of the record books.
Less than two weeks later, as Irma made landfall in South Florida and blazed its trail up the west coast of the state, the commercial real estate markets impacted were smaller compared to Harvey, but still quite substantial. Commercial markets in the path of Hurricane Irma were comparable in size to those impacted by Hurricane Sandy. As such, we would expect to see Irma’s damage totals meeting, if not exceeding, $75 billion, which was the reported total for the New York/New Jersey markets in 2012.
Regardless of actual totals, there is no dispute that these storms cause cataclysmic destruction to the people and property impacted. Clean-up efforts are expensive and time-consuming, and the rebuilding process can take years. The bright spot, however, is that despite the inevitable lasting effects, the economic impacts are temporary. Markets will recover, developers will build again, and prosperity will return to regions of the country once declared a state of emergency.
Hurricanes in the last 15 years, by category
Click to view this interactive chart on hurricanes in the last 15 years. Hover over the color coded squares to view individual storm details, or click the right/left arrows in the bottom toolbar to view the storm paths.
Source: Stan Johnson Company Research, CoStar Group, U.S. National Oceanic & Atmospheric Administration's National Weather Service; storm path images courtesy of Wikipedia
Methodology & Disclaimer: analysis includes named hurricanes since 2000 generating at least $10 billion in damage; estimated size of markets impacted based on general path of storm system from landfall point, incorporating unique adjustments to account for specific circumstances caused by individual storms; market size estimates based on all commercial properties that would have existed in the impacted area at the time of the storm regardless of size, property type, or tenancy; methodology and predictions are not guaranteed, and this analysis should be used for illustrative purposes only