Does Climate Change Affect Investment Performance? Evidence from Commercial Real Estate

AbstractCommercial real estate investors prefer coastal, gateway, markets for liquidity, demand density, and durable returns. Yet, these areas are more vulnerable to the effects of climate change from more intense and frequent weather events such as hurricanes and typhoons as well as to gradual changes such as sea-level rise. Recognition is growing of the risks that these events pose to investment performance, but little is known about how this risk has impacted property values and returns when an event such as a hurricane occurs. This is the first study to analyze the impact on property values and returns from hurricanes causing the most significant damage by value over the past 30-plus years throughout the nation. Using individual property data from the National Council of Real Estate Investment Fiduciaries database, we find a significant impact on the value and rates of return, after accounting for any additional capital expenditures for repairs, for properties that are in areas impacted by a hurricane, relative to areas that were not impacted by a hurricane. These impacts vary by property type and can last for several years after the hurricane hit land in the area.

Download Full-text

The Carbon Risk Real Estate Monitor—Developing a Framework for Science-based Decarbonizing and Reducing Stranding Risks within the Commercial Real Estate Sector

Journal of Sustainable Real Estate ◽

10.22300/1949-8276.11.1.174 ◽

2019 ◽

Vol 11 (1) ◽

pp. 174-190

Author(s):

Jens Hirsch ◽

Maximilian Spanner ◽

Sven Bienert

Keyword(s):

Climate Change ◽

Real Estate ◽

Financial Risk ◽

Assessment Tool ◽

Energy Performance ◽

Commercial Real Estate ◽

Financial Risks ◽

Building Stock ◽

Carbon Reduction ◽

Real Estate Sector

Key obstacles to achieving the ambitious decarbonization targets determined in the Paris Agreement include the poor energy efficiency of the European commercial real estate sector and excessively low refurbishments rates due to uncertainty and a lack of transparency regarding future regulatory guidelines. This paper introduces the Carbon Risk Real Estate Monitor (CRREM), aimed at accelerating decarbonization and climate change resilience by clearly communicating the downside financial risks associated with poor energy performance buildings, and quantifying the market implications of climate change on the building stock. Science-based emission targets serve as a theoretical foundation for providing the industry with appropriate carbon reduction pathways for particular buildings at the portfolio and company levels. A key outcome of this project is a quantitative and qualitative financial risk assessment tool. The aim is to optimize industry investments in energy-efficient retrofits by making risks more transparent and by revealing opportunities for property owners and investors. The CRREM tool enables the industry to assess stranding risks, accelerating the decarbonization of the EU building stock to “2-degree readiness” (2DR) and make real estate portfolios “future proof.”

Download Full-text

Measuring European property investment performance: comparing different approaches

Journal of European Real Estate Research ◽

10.1108/jerer-10-2013-0022 ◽

2014 ◽

Vol 7 (1) ◽

pp. 112-132 ◽

Cited By ~ 1

Author(s):

Steven Devaney

Keyword(s):

Real Estate ◽

Asset Allocation ◽

Sample Selection ◽

Real Estate Market ◽

Commercial Real Estate ◽

Investment Performance ◽

Content Type ◽

Real Estate Markets ◽

Country Level ◽

The Usa

Purpose – Price indices for commercial real estate markets are difficult to construct because assets are heterogeneous, they are spatially dispersed and they are infrequently traded. Appraisal-based indices are one response to these problems, but may understate volatility or fail to capture turning points in a timely manner. This paper estimates “transaction linked indices” for major European markets to see whether these offer a different perspective on market performance. The paper aims to discuss these issues. Design/methodology/approach – The assessed value method is used to construct the indices. This has been recently applied to commercial real estate datasets in the USA and UK. The underlying data comprise appraisals and sale prices for assets monitored by Investment Property Databank (IPD). The indices are compared to appraisal-based series for the countries concerned for Q4 2001 to Q4 2012. Findings – Transaction linked indices show stronger growth and sharper declines over the course of the cycle, but they do not notably lead their appraisal-based counterparts. They are typically two to four times more volatile. Research limitations/implications – Only country-level indicators can be constructed in many cases owing to low trading volumes in the period studied, and this same issue prevented sample selection bias from being analysed in depth. Originality/value – Discussion of the utility of transaction-based price indicators is extended to European commercial real estate markets. The indicators offer alternative estimates of real estate market volatility that may be useful in asset allocation and risk modelling, including in a regulatory context.

Download Full-text

Nexus of Climate Change and Sustainable Real Estate

Handbook of Research on Climate Change and the Sustainable Financial Sector - Advances in Finance, Accounting, and Economics ◽

10.4018/978-1-7998-7967-1.ch005 ◽

2021 ◽

pp. 71-83

Author(s):

Thabiso Sthembiso Msomi ◽

Odunayo Magret Olarewaju

Keyword(s):

Climate Change ◽

Economic Growth ◽

Carbon Dioxide ◽

Real Estate ◽

Commercial Real Estate ◽

Climate Change Risk ◽

Growth Phenomenon ◽

Property Owners ◽

Climate Change Risks ◽

Climate Patterns

This chapter investigates the nexus of climate change and real estate sustainability. Climate change is the topical dramatic swing of the planet's normal climate patterns caused by a spike in emissions of carbon dioxide triggered by human activities. Climate change risk is not being effectively estimated into commercial real estate assessments. Due to high demand for coastal properties, a lopsided share of commercial real estate is vulnerable to climate change risks. Thus, it was concluded that real estate is an essential part of an evolving growth phenomenon and also plays a major role in stimulating economic growth. This makes it important for investors and property owners/dealers to be resilient in combating climate change, and adequate information should be available for investors so they will know the risk attached to their investment.

Download Full-text