I’ve been watching insurance premiums on industrial buildings climb for the past three years and it’s getting ridiculous. Owners who were paying $0.30/SF in 2020 are now paying $0.50-0.70/SF. On a 25,000 SF building, that’s an extra $5K-10K per year in expenses. And it’s not slowing down.
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Current Insurance Costs: What percentage of your gross rent goes to property insurance right now? -
3-Year Trend: Have premiums been flat, growing slowly, or spiking? What’s the forward trajectory? -
Building Risk Profile: Are there roof issues, prior claims, location-specific risks (flood, wind, crime) that might justify premiums? -
Lease Structure Alignment: If you have gross leases, who absorbs insurance increases? If NNN, can tenants sustain higher NNN payments?
Why it’s going up
Reinsurance costs. Catastrophe losses from hurricanes, tornadoes, and hail storms across the Southeast. Inflation on replacement costs (the insurance company has to pay more to rebuild, so they charge more to insure). And some carriers are straight up pulling out of certain markets.
Insurance Impact on Value
For every dollar increase in annual insurance expense per SF, your building’s value drops approximately 20-25 percent of that annual amount (using a 5 percent cap rate). Examples:
- Insurance rises from 1.00 to 1.50 per SF per year = 50 cents annual increase = 10-12 thousand dollar value reduction (on a 20000 SF building)
- Insurance rises from 0.75 to 1.25 per SF per year = 50 cents annual increase = 10-12 thousand dollar value reduction
- Building NOI 150 thousand per year, but insurance just went up 15 thousand? Expect a 15-20 percent value reduction unless rents increase proportionally
- NNN leases mitigate this risk because tenant absorbs increases
- Gross leases amplify this risk because you absorb 100 percent of increases
The Carolinas have been hit hard. We’re in the hurricane zone, we get severe thunderstorms, and we’ve had enough major events in the past few years that the actuaries are repricing the whole region.
How it affects value
Insurance is a direct hit to NOI. If your NNN tenants are covering insurance, they feel the pain through higher pass-throughs. If you’re on gross leases, it comes straight out of your pocket. Either way, it affects the building’s value.
A building in Wilmington near the coast might have insurance at $0.80-1.00/SF. The same building 100 miles inland in Greensboro might be $0.40/SF. That difference alone can swing the building’s value by $50K-100K on a mid-size property.
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What you can do
Shop your insurance aggressively. Don’t just auto-renew. Get quotes from multiple carriers and consider higher deductibles to lower premiums. Some owners are saving 15-20% by going from a $5K deductible to a $25K deductible. That’s a calculated bet but it can make sense on a well-maintained building.
Roof condition matters to insurers. A new roof can lower your premium significantly. Metal roofs tend to get better rates than membrane roofs. If you’ve recently replaced your roof, make sure your insurer knows.
The selling angle
If insurance is eating your returns and you don’t see it getting better, selling might make sense. A buyer like me can absorb insurance costs across a portfolio, which sometimes means better group rates. Your building might perform better in someone else’s hands from a pure expense standpoint.
Seller takeaway
Insurance costs are a silent value killer. If your insurance premiums have spiked in recent years and you’re thinking about selling, call Roth Capital at 704-600-3839. We’ll factor the real insurance numbers into your pricing.
Call me if your insurance renewals have been keeping you up at night. 704-600-3839.
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