One of the biggest hurdles potential new office developments face are high insurance premiums, caused largely due to rising risk associated with climate change. According to OZK Insurance in Rogers, in 2023, insurance companies in Arkansas reported $2.56 billion in losses, compared to $2.05 billion collected in premiums, a 144% loss ratio that ranked second in the nation.
Specific risks vary by region, but the data is clear: Severe weather events are becoming more frequent, and it’s costing developers.
A panel on climate risk solutions during the Urban Land Institute – Northwest Arkansas Chapter’s 2025 Place Summit highlighted the risks particular to NWA: drought, heat stress and severe episodic rainfall, all of which impact urban infrastructure and water supply.
“Folks are seeing that there are an increase in the number of disasters that we’re seeing. They’re more severe, they’re more expensive,” Lindsay Brugger, ULI’s vice president of urban resiliency, tells summit attendees at the Fayetteville Town Center. “They’re seeing increases in their property insurance and they want to get ahead of it.”
Additionally, institutional investors and developers are seeking a new product model that emphasizes health and sustainability. While that doesn’t have a direct impact on insurance rates, it can help with marketing the development and attracting environmentally conscious tenants.
“If I’m inside for nine or 10 hours a day working, what can I see outside? What’s my view like? Am I looking at a parking lot, or am I looking at trees? Am I looking at my neighbors? Do I have opportunities to engage with neighbors in a healthy way?” adds Jeremy Hudson, CEO of Specialized Real Estate Group in Fayetteville. “So that’s a risk if you’re not addressing it — the customer is different.”
(Photo courtesy of Polk Stanley Wilcox)
Climate resiliency in commercial construction could include:
- High-performance insulation
- Energy efficient lighting and appliances
- Automatic lighting controls and daylight sensors
- Green roofing
- Rainwater harvesting systems
- Efficient plumbing and fixtures
- Drought-resistent landscaping
- Permeable paving in parking areas
- Elevated building design (in flood-prone areas)
- Reinforced concrete and steel frames
- Aerodynamic building shapes
- Safe rooms/storm shelters on-site
- High-efficiency HVAC systems
- Natural ventilation designs
- Passive solar design
- Geothermal heating and cooling systems
- Rooftop solar panels
- Battery storage for power
- On-site electrical vehicle charging stations
ULI offers tools to assess exposure to potential climate risks, available on the nonprofit’s website. The report walks developers through defining potential risks in their area, identifying the damage their assets could sustain, calculating annual and cumulative risk exposure, interpreting the results of the assessment and finally mitigating climate risk.
Panelists acknowledge that building climate resiliency into a new development is costly, but said in addition to institutional investor and secondary market financing support for such measures, operating costs are often lower in such buildings because they’re more efficient. According to a 2005 National Institute for Building Sciences report, every $1 spent on prevention saves $4 in recovery costs.
“If we’re investing in efficient buildings and efficient fixtures on the water side, or we’re recapturing water, or we have drought-tolerant landscapes that are using much less water, over time, that project is going to be more resilient, more profitable than a project that is not built with those things in mind,” Hudson says.
Some recommendations ULI makes for future-proofing a new development include investing in proptech, or “property technology,” like automatic lights and other smart-building systems; integrating renewable energy and battery storage; and including sustainable landscaping, like native and drought-resistant plants.
Matt King, a vice president of commercial banking at Arvest’s Benton County branch, says managing insurance costs with resiliency can help developers create a more stable pro forma for new projects.
“If you have some sort of green sustainability, that helps with underwriting, preparing your pro forma. There’s consistency with utility expenses,” King says.
A 2024 report by Deloitte predicts commercial property insurance rates to rise from 7.9% to 10.2% by 2030 across the U.S.
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