Property investors and occupiers must increase operational resilience in response to heightened risks from climate-related events, according to a new report by CBRE.
Frequent and heightened climate-related events, such as tropical cyclones, floods and heatwaves, pose significant risks to real estate assets.
In Asia Pacific, the average annual loss from climate extreme events was estimated at around US$780 billion, potentially increasing to US$1.2 trillion to US$1.5 trillion in moderate to worst-case scenarios.
The Australian government’s National Climate Risk Assessment estimated that losses in Australian property values could reach AU$611 billion by 2050 under a high global warming scenario.
Climate events impact real estate in several ways. Typhoons, floods and bushfires can significantly damage buildings, infrastructure and other areas, leading to high repair and maintenance costs.
Extreme weather events can also increase insurance costs, and properties in high-risk areas may become impossible to insure affordably.
Properties in areas with high exposure to physical risk may also see a decline in asset value, some buildings may even become ‘stranded assets’, or properties that have lost or are expected to lose significant economic value.
Another way that climate events pose a risk to properties is the ability to secure financing for properties in high-risk areas. Banks are applying stricter rules and higher lending ratios for properties at risk of climate-related events.
As severe climate events increase, investors can protect their real-estate investment by ensuring that resilience features are implemented at the design stage for new builds. Some practical building-level measures include installing backup power systems, upgrading drainage infrastructure or investing in impact-resistant windows.
CBRE expects occupiers to look for resilient properties. Resilient buildings will likely command higher rents and long-term value. Owners who invest in resilience can gain a competitive advantage by protecting their properties from damage and maintaining their value in the face of changing climate risks.
