What the Los Angeles Fires Mean for Commercial Real Estate: Changes Coming

The fires are not just a disaster; having burned 40,500 acres, destroyed more than 12,300 structures, and claimed at least 24 lives, they’re a tipping point. 

California is now burdened with insurmountable debt, gutted infrastructure, and a fleeing population. The question is no longer whether the state can recover—it’s how much of its economy and population it can retain. 

And while the full devastation has yet to be calculated, it's clear that we will be living in the aftermath of these fires for another decade. The wildfires of January will stand as a defining moment for Los Angeles, Southern California, and the nation—fundamentally altering how we assess natural disaster risks in real estate moving forward. 

So, buckle up, California; things are bound to get a lot more expensive... 

Continue reading to learn how: 

• The Wildfires are Ravaging California’s Economy 

• Residential Rents Skyrocketed Overnight 

• Insurance Costs will Spiral Out of Control 

• Mass Migration to Safer States will Change the Country 
  
  

Los Angeles County Wildfires, Final Blow 

California was already $1 trillion in debt when we started this year. This in itself is an impossible challenge to solve. 

Now, layering the devastating effects of the Los Angeles fires onto this situation has dealt what feels like a final blow to the state’s economic stability. 

With entire neighborhoods razed, infrastructure crippled, and resources stretched to their absolute limits, California faces a crisis that will redefine its urban and economic landscape for decades to come. 

The Scope of the Impact 

The fires have forced 180,000 people to heed evacuation warnings and destroyed over 12,300 structures, including both commercial and residential buildings. Among them:

• $1.3 billion in CMBS loans tied to properties now at risk of default. 

• $2.6 billion worth of commercial properties in the path of destruction, according to an analysis by Trepp. 

• Commercial hubs critical to the local economy, including office parks, warehouses, and retail spaces, many of which sustained irreparable damage. 

• Entire supply chains disrupted as warehouse ingress and egress points, rail terminals, and distribution centers in affected areas have been rendered unusable. 

The fires’ impact on Los Angeles, a city already grappling with housing shortages, homelessness, and declining property values, is unprecedented. So, while it may seem minimal to bring this devastation down to the level of commercial real estate, it is a necessary lens. 

Understanding how one critical branch of California’s economy is brought to its knees underscores the cascading repercussions we’ll continue to see in the weeks, months, and years to come. 

Landlords Already Jacking Up Rent in Southern California 

A State of Emergency was declared for Los Angeles and Ventura counties on January 7, following the devastating wildfires. In response, residential landlords in Los Angeles County have surged rental prices overnight, with some properties seeing increases of over 50%, particularly in areas affected by the Palisades fire and the Eaton fire. 

The fires have only accelerated an already volatile commercial real estate landscape in the Los Angeles area. Landlords across various sectors are positioning themselves to extract maximum value, creating an increasingly hostile environment for both businesses and residents struggling to recover. 

The fires have left large swaths of commercial real estate at risk, with $1.3 billion in CMBS loans tied to properties within the evacuation zones. As properties lose value and income streams dry up, the fallout from these fires will have lasting effects on the commercial market: 

• Sharp declines in property values as buildings are damaged or destroyed, forcing lenders to confront loan defaults. 

• Opportunistic investors will target distressed properties for redevelopment. However, properties that fail to incorporate fire-resistant measures could face substantial losses. 

• Fire risk will significantly alter the investment landscape, prompting some investors to shift focus to safer areas like Texas and Florida to reduce exposure and operational costs. 

The impact of these fires will continue to resonate across Southern California’s commercial real estate sector, reshaping its future for years to come. 

Insurance Costs Spike 

As the Los Angeles wildfires continue to burn, insurance premiums are set to skyrocket, particularly for properties in high-risk zones across Southern California. As fire season extends and the region faces increasingly unpredictable extreme fire weather scenarios, insurers are recalibrating their risk assessments. With red flag warnings and extreme fire behavior becoming more frequent, property owners will see a surge in their insurance costs. 

Insurance companies will reassess the fire danger in these areas, leading to: 

• Skyrocketing premiums for properties in high-risk fire zones. 

• Higher deductibles and exclusions for fire-related claims, leaving both property owners and tenants vulnerable to greater financial exposure. 

• Increased insurance costs for tenants as landlords pass on these escalating expenses. 

As fire season becomes more unpredictable, insurance companies will look to mitigate their risk in the future with heightened insurance costs. This will not only slash growth potential for companies already struggling with rising operational costs in a fragile post-fire economy but will undoubtedly push companies to reconsider their presence in high-risk areas. 

Migration and Emerging Hotspots 

Population Outflows from California: 

As the fires devastate California's infrastructure and property values, a mass exodus is expected. Both businesses and residents will likely accelerate their migration to states like Texas and Florida, where: 

• Commercial real estate (CRE) prices remain more competitive, offering businesses more affordable options to expand or relocate. 

• Fire risk is significantly lower, and insurance premiums are much less expensive, offering businesses a safer and more cost-effective environment. 

The impact of these fires, combined with already high living costs and uncertain conditions in California, will likely push even more people and companies to seek refuge in states with more favorable conditions. This is especially true for businesses looking to reduce exposure to rising operational costs, including escalating insurance premiums and unpredictable natural disasters. 

Because at the same time, the quality of governance at both the state and city levels is becoming a decisive factor in determining the viability of long-term investments in commercial real estate, whether for office space, manufacturing facilities, or logistics hubs. Inept governance is rapidly devaluing entire regions, creating lethal circumstances for businesses and residents alike. 

When considering a 5-, 10-, or 15-year commitment, businesses must assess the local government's ability to manage key issues such as: 

• Infrastructure maintenance and development 

• Emergency response and disaster recovery 

• Crime prevention and public safety 

• Fiscal responsibility and tax policies 

No matter where you stand politically, it’s painfully clear that corporations cannot afford to ignore the impact of government inefficiency. Mismanagement and poor policy choices drive up operational risks, disrupt supply chains, and discourage workforce retention. 

Next Big CRE Markets: 

Cities such as Houston, Tampa, and Orlando are poised to absorb the displaced demand from businesses seeking stability and affordability. These markets are already attracting interest from investors who see long-term potential in an influx of businesses and residents looking to relocate. 

Takeaways for Tenants 

The Eaton and Palisades fires are not just natural disasters—they are catalysts for profound economic and social upheaval. As Los Angeles grapples with the immediate aftermath, the long-term implications are clear: California’s commercial real estate market is entering an era of heightened uncertainty. 

The strain on infrastructure, escalating insurance premiums, and increased risk of natural disasters are forcing businesses to reassess their commitments to the region. With fire season becoming a year-round threat, the already fragile foundations of California’s economy will continue to erode, prompting migrations of both capital and people to safer, more stable areas. 

For businesses weighing their future, the question is no longer just about adapting to risk but whether the region still offers the viability needed for long-term success. The fallout from these fires underscores the critical importance of evaluating governance, infrastructure resilience, and environmental risks when making strategic real estate decisions. 

The landscape of commercial real estate in California—and especially Los Angeles—will never be the same. Businesses will be forced to act decisively and strategically to navigate the challenges ahead.

Donate to victims of the wildfire here at: Directrelief.org