The news is filled with stories on climate change, even when that isn’t the main topic. Massive flooding in Puerto Rico and a heavy storm battering the Alaskan coastline, for example.
Then there’s blazing heat in the summer and people wondering what the winter will be like.
“Climate warming is currently affecting the U.S. commercial real estate market in profound ways; it is associated with sea-level rise, chronic flooding, more intense wildfires, increased energy load on urban assets and city power grids, accelerated asset degradation, air quality reduction and changing population migration patterns,” says Cushman & Wakefield in a recent look at real estate’s environmental performance.
The events have both lenders and investors scrutinizing information to find any correlations between what actions real estate takes and impacts on rents, operating costs, and capital expenses, the firm says. To address the issues, companies might shift their portfolios and “look to other markets where detrimental trends are not as prevalent and the costs to run those assets are not as high.”
There’s already a move by landlords to address these needs. “In Gateway-Plus markets, LEED-certified multifamily buildings grew from 7.5% of Class-A urban inventory to 18.1% through year-end 2021,” the firm’s analysis noted. “Rental rates for LEED-certified multifamily assets outpaced their non-certified counterparts by 3.1% on average from 2000-2021.” LEED-certified office properties accounted for 46% of urban deliveries over the last ten years.
This may be because of the growing awareness of how climate impacts corporate costs. Wildfires, hurricanes, tornadoes, and other severe climate events can destroy property, keep people from working, and undermine the ability to operate. “A study performed by the Union of Concerned Scientists … indicates that Sunbelt cities including Phoenix, AZ; Dallas, TX; Sarasota, FL; Memphis, TN; and Jackson, MS are most likely to be adversely impacted by an increase in extreme heat days per year.” And the Sunbelt region has some of the highest levels of CRE activity in the country.
But that’s not the end of extreme heat. National climate non-profit research organization First Street Foundation expects an “extreme heat belt” to have an impact on more than 107 million in the country by 2053. Within 30 years, the “local hottest 7 days are expected to become the hottest 18 days.”
And then there are the insurance costs that will only rise with temperatures.
Cushman & Wakefield suggest that companies should “future-proof” their portfolios through LEED and Energy Star certificated property acquisitions and development, retrofitting assets for “extremes in temperature changes, flooding, and hurricane-force winds,” and reviewing portfolio plans.