The surveys and interviews for the Emerging Trends in Real Estate® 2018 report were complete; the data had been compiled, and the reports had been written. Then, for some of the major U.S. Sun Belt cities, everything changed. Historic storms raged across the Gulf Coast and the Caribbean, destroying property and lives and upending all the forecasts and predictions for property markets in the Southeast. Investors and developers were sent scrambling to reassess their analysis and financial models.

“What we’ve seen after hurricanes is that the recovery stretches over years, not months,” says Robert Murray, chief economist for New York City–based Dodge Data & Analytics, which tracks the construction industry.

Before the storms, several of the most-affected markets were ranked among the best markets in the Emerging Trends survey. Fort Lauderdale was sixth on the list of U.S. markets to watch; Tampa/St. Petersburg was ranked 19th as a market to watch and 24th for homebuilding prospects. Houston, which was number one in Emerging Trends 2015, had fallen to number 60 in the 2018 report, due to a slowdown in energy-related business.

However, the surveys were completed long before the storms hit and drought-fueled fires swept through the West, which might explain why “risk from extreme weather” ranked at the bottom of respondents’ concerns. That may have changed, particularly in Houston, Florida, Puerto Rico, and the Caribbean. Even ahead of the storms, Emerging Trends authors noted the ongoing threats that such events pose to business and the economy. With property losses from natural catastrophes soaring, data “clearly show that complacency” is not the answer “in the face of a long-term rise in significant natural disasters since 1980,” the Emerging Trends report noted. The report is published annually by ULI and PwC.

If nothing else, massive storms tend to be complacency killers, says Jim Murley, chief resilience officer for Miami–Dade County. In the wake of the natural disasters, resilience and sustainability move back to the forefront of discussions, wiping out what planners often call “hurricane amnesia”—the tendency to forget the dangers as the memory of the last hurricane fades.

“This thing compensates for the amnesia,” Murley says. “If it does anything, it accelerates what we hope we can get done between now and the next storm.”

Short-Term Effects

Developers and builders in the Southeast were already experiencing labor and material shortages; the demands of rebuilding are exacerbating those conditions. Speakers at an event held by ULI Austin in October voiced concerns about statewide effects on construction labor and materials. Jim Rado of Austin, regional manager at David Weekley Homes, said the Houston-based homebuilder already was hearing from roofing contractors and suppliers that post-Harvey price hikes of 5 to 10 percent would take effect January 1.

On the labor front, David Weekley’s manager in the Houston area tried to recruit drywall crews from San Antonio to finish ten houses before the end of 2017, Rado said. But those crews were in short supply because many drywall laborers were flocking to Texas’s hard-hit Gulf Coast cities like Port Aransas and Rockport to rebuild residential properties, he said. Available out-of-town crews were commanding a premium.

Over time, such effects will be “pretty drastic,” Rado said. But the picture will not become clear until insurers pay homeowners’ Harvey-related claims and residents decide whether to rebuild, he said.

Nick Moulinet, an Austin executive at commercial builder DPR Construction and chairman of the Real Estate Council of Austin, said he was not sure how pricing in commercial construction would fare in the aftermath of Harvey. So far, he said, DPR had noticed no impact on the costs of labor or materials in Texas. Still, Moulinet said he worried that workers hopping over to the residential side would create a labor shortage in commercial construction.

“The thing that I think scares us the most is the perception that prices are going to increase, the discussion that prices are going to increase, that fear of, ‘Hey, it’s going to come, we just don’t know when,’” Moulinet said.

The Houston Market

Hurricane Harvey caused $73.5 billion in economic losses—second worst in history, behind only Hurricane Katrina—according to Moody’s Analytics. More than 61,000 people were displaced and 136,000 structures in Harris County were flooded, local agencies report.

In its initial analysis, research firm CoStar estimated as much as 600 million square feet (56 million sq m) of commercial real estate space in the Houston metropolitan area—38 percent of Houston’s total gross leasable area—had been affected by the flooding. At least 25 percent of the property damaged was not in a flood zone designated by the Federal Emergency Management Agency (FEMA), CoStar found.

But the damage was not universal; some areas were much harder hit than others. The Katy Freeway West submarket, the second largest in the area, had more than 2 million square feet (186,000 sq m) of office space affected by the floods, but downtown Houston was largely unscathed, CoStar reports.

The storms provided an immediate and dramatic correction to Houston’s multifamily market, which was largely seen as oversupplied before the storms, local experts say. More than 72,000 apartments were in the flood zone, including about 35,000 units in southwest Houston alone, or 45 percent of the submarket, CoStar found.

“We had a lot of [multifamily] supply taken off the market,” says Todd LaRue, managing director of Austin for RCLCO Real Estate Advisors.

The residential market in Houston is already starting to surge, as demand for homes soars, LaRue says. Investors are buying damaged homes at steep discounts; many owners did not have flood insurance, local experts say. And buyers remain interested in the commercial and industrial markets, where Houston is seen as a growing market, thanks to its port and energy interests.

“We still see transactions in the market,” LaRue says.

Before the storms, Houston’s office market was starting to emerge from the energy slowdown, as the city worked to diversify its economy, Murray says. In the first nine months of 2017, the dollar volume of office construction starts was 37 percent higher than in the same period a year earlier, according to Dodge Data & Analytics. But there’s a new question facing the market: Will tenants turn away from flood-prone areas?

“What remains to be seen is interest in new construction from the commercial side,” LaRue says. “Are companies going to think twice about going to Houston? I don’t know if that story has played out.”

Speaking at the same ULI event in October, CW Sheehan, an Austin vice president at commercial real estate services company JLL, said some people might reconsider whether to live or start a business in the Houston area in the wake of Harvey—and major floods that hit the region in 2015 and 2016.

But Sheehan and Moulinet said that people and businesses will remain in and relocate to Houston because of its status as the fourth-largest U.S. city and a global energy hub. One incentive for companies to locate there is the office vacancy rate of nearly 23 percent for the third quarter of 2017, which provides leverage for tenants seeking deals on leases, according to a JLL report.

As the area recovers, the issue of housing affordability looms, said Rado.

“In my 40 years in the business, I’ve never seen a bigger disconnect between what it costs to buy land, build something, and have somebody be able to afford it, and then leave any of us a profit,” Rado said. “If we grow, we can’t grow in the places that people want to be, because they can’t afford it. We’re having to build further out, like we did in the ’80s and ’90s.”

In building away from the core of the Houston area, developers end up drawing blame for sprawl-induced flooding, Moulinet said. “Whether it’s true or not, that’s the narrative,” he added.

Florida and Puerto Rico

Communities often emerge as different places in the wake of natural disasters. When Hurricane Katrina hit New Orleans, thousands fled and never returned. (Many went to Houston.) A similar phenomenon may be playing out in Puerto Rico; more than 186,000 people left the island in the three months after the storms hit, according to a New York Times report. Many of those people are expected to settle in Florida, where the Puerto Rican community has been booming in recent years. There are already more than a million Puerto Ricans living in Florida, more than double since 2000, according to the Pew Research Center.

“The migration is expected to transform Orlando, a city that has already become a stronghold of Puerto Ricans, many of them fleeing the island’s economic crisis in recent years,” the Times reported. “The impact of this latest wave is likely to stretch from schools and housing to the workforce and even politics.”

In Puerto Rico and other places that were devastated by the storms, traditional market forces will no longer be the primary driver of many local trends, executives say. The pace of recovery will be “entirely driven by federal funding,” AECOM’s Christopher Ward said during a panel at the 2017 ULI Fall Meeting in Los Angeles. “It’s not going to be a reflection of the market.”

If federal aid does not materialize, cities and states will need to find funds from already stretched budgets to aid the recovery. Traditionally, devastating weather events lead to a surge in storm and water infrastructure construction, but it can take years to develop, Murray says. New York and New Orleans are still working on projects created from the debris of hurricanes Sandy and Katrina, he notes.

Traditionally, rebuilding efforts are seen as a chance for communities to reshape their infrastructure. Storms wipe out the old and provide opportunities for something new. For example, in Puerto Rico, Tesla is installing solar panels and battery packs to help bring power back to some neighborhoods. Drones and balloons are being used to extend telecom networks.

“We have this historic opportunity: instead of going with incremental changes, we can go and push the envelope to really transform the infrastructure,” Manuel Laboy, head of Puerto Rico’s economic development department, told CNNMoney. “That is the silver lining opportunity that we have.”

Resilience Dividends

In many ways, the storms that hit Florida demonstrated the success of changes made in the wake of the last big hurricane to ravage the area, Hurricane Andrew in 1992, property experts agree. After Andrew, strict new building regulations and disaster preparedness programs were implemented around the state.

“Ever since Hurricane Andrew, we have put significant resources into our classic emergency management,” says Murley, the chief resilience officer for Miami–Dade County. “We drill. We practice every year.”

Overall, most parts of Florida were not as badly damaged as originally feared, as the storm veered up the coast. “We’ve learned lessons,” says Lee Arnold, executive chairman of Colliers International Florida. “It is really a function of better planning, better communication, better technology, and better hardening [of construction],” he says, adding, “and recognizing we are a wind storm state.”

The impact on most Florida property markets was primarily felt in the days before and after the storms, Arnold says. Closing deals was impossible, he recalls. “The insurance market shut down.”

Early hurricane warnings helped give owners time to prepare their properties, he notes. Beyond simple window and roof protection, the state was better prepared with generators, fuel, and facilities to help evacuees. “People just seem to know what to do better,” Arnold says.

Around the state, there was evidence of the impact of new practices implemented in response to past disasters. “Better overprepared than not prepared,” says Bill Zhou, managing director of the Elite International Investment Fund, a real estate–focused fund with investments in Texas and Florida. “We took down cranes in Miami in anticipation of Irma, which proved to be a prudent decision.”

The impact of the storms may prod investors and developers to rethink sustainable and green designs, which will also help the long-term resilience of projects, some experts say. In Florida, mangrove trees and shrubs are seen as one of the best protections for the coastline; in Houston, additional green belts would help absorb flood water runoff.

“We do believe that green building initiatives will get more traction and may increasingly demand a price premium in the marketplace,” Zhou said, “Building green is always a good thing to do, and now it is justified economically more.”

In the future, the risks of natural disasters will need to be evaluated in a holistic sense, Zhou says. “It has not materially changed our view yet, but it will depend on the future of flood insurance programs and the costs to build in these markets,” he says. “It does affect the way we look at certain specific locations prone to flooding.”

Ultimately, in Florida, Irma was likely not destructive enough to force a real change in policies in a state where hurricanes are relatively common, Murley says. “We didn’t have physical damage that would change the trend lines we’re already on.” But the storms will influence discussions. Stormwater, drainage, and coastal protection issues will not be easily pushed to the back burner, he says. And the disproportionate impact on low- and moderate-income households will raise larger societal issues. “It scrapes away all the fog over the really tough issues of housing and income equality,” he says. “It exposes that right away.”

Houston has already started the process of rethinking its approach to developing in a city that largely sits in a floodplain. The city has launched a new planning effort to rework the plan for the downtown business district, which will include a new resilience component. Initial proposals call for green belts, permeable surfaces, and natural vegetation to help absorb stormwater.

Moulinet said that more foresight is needed regarding design, development, and construction in Houston and elsewhere in Texas to accommodate growth, but also to anticipate disasters like Harvey.

Government officials who establish development codes must be held accountable for “where and how we grow,” Moulinet said. But he added that builders, engineers, architects, and other industry professionals also bear a responsibility to help people understand the risks of where they want to build homes and offices.

The struggle over responsible development boils down to a tug-of-war between supply and demand, Moulinet said. “Is it the real estate community that’s responsible for putting people in harm’s way, or the people who are buying themselves into harm’s way?” he asked. “That’s going to be the big question that we’re going to have to answer. [Developers are] always going to be responsive to the demand.”

Coming out of the storms, many issues need to be addressed, industry experts say. For Arnold of Colliers, the question is the availability of catastrophic insurance. “We’ve got to solve it,” Arnold says. “And it can’t be solved just by Floridians.”

Murray believes the key issue that must be confronted is the level of funding for flood and storm control projects. “What the storms did is emphasize the need to direct more attention to environmental public works,” he says.

Those discussions will not be limited to the areas devastated by storms and fires this year, the Emerging Trends report emphasizes. Damage from natural disasters is expected to have hit an all-time high in 2017. Beyond the hurricanes, the phenomena of rising temperatures, drought, and wildfires wreaked havoc across the West. In the East, rising sea levels will force Boston, Miami, New York, and the Carolinas to reconsider plans to prevent future flooding.

“Harvey and Irma may be seen as a harbinger of future flooding affecting billions of dollars’ worth of real estate,” the Emerging Trends authors concluded. “While natural events catch our attention, climate trends are longer-range changes, but ones that developers and investors will be increasingly wise to pay close attention to.”