Commercial Investment Real Estate Spring 2022 | Page 37

CONTENT SPONSORED BY ESRI
By Gary Sankary

THE HOW AND WHERE OF CLIMATE RISK

Location intelligence from Esri can prepare the commercial real estate industry for approaching environmental changes .

In a move that could alter the practice of buying and selling homes , real estate broker Redfin is adding climate risk scores to sale listings . Home buyers can now evaluate climate risk the way they assess local schools , tax rates , and neighborhood appeal .

The new data addresses the public ’ s growing interest in understanding the shifting nature and location of risk . It ’ s a pursuit shared by business leaders , many of whom already use predictive models and analysis from geographic information system ( GIS ) technology to anticipate climate shifts and adjust investment strategies accordingly .
CLIMATE RISK ON BUYERS ’ MINDS Nearly 80 percent of current and potential homeowners told Redfin they ’ d be hesitant to buy a home in an area with frequent or intense natural disasters . In the same survey , nearly half of people planning to move in the next year indicated that extreme temperatures and increasing natural disasters played a role in that decision .
Given the weather disruptions that have already beset many areas of the world , it ’ s no surprise that home buyers and businesses are considering climate risk in their investment decisions . In each of the past 40 years , the United States averaged seven weather disasters costing more than $ 1 billion each ( adjusted for inflation ). But in the past six years , the average number of $ 1 billion events per year increased to more than 15 , according to the National Oceanic and Atmospheric Administration . These events are not just costly but devastating to homes , businesses , neighborhoods , critical infrastructure , and supply chains .
Companies have long relied on GIS-generated location intelligence to respond to weather events . Now , the technology ’ s ability to model long-term weather patterns and related climate risk could shape real estate investments for individuals and organizations .
ASSESSING CLIMATE RISK Climate risk data , similar to the kind Redfin now provides , is also important to commercial property investment decisions . Commercial real estate leader CBRE estimates that 35 percent of global REIT properties are exposed to hazardous climate events , such as inland flooding and hurricanes .
Even with the escalation of climate-related weather events and the persistent pandemic , commercial property sales totaled a record $ 809 billion in 2021 . This nearly doubled the total sales of the previous year , according to data firm Real Capital Analytics . Real estate investors see this acceleration in sales remaining in 2022 as the pandemic continues to drive demand for commercial properties like warehouses and other logistics centers and apartment buildings . And while the climate risk hasn ’ t previously been a major factor in choosing commercial properties for investment , evidence shows it is now moving up higher on the list of concerns for real estate professionals .
A recent article from McKinsey & Company noted that building climate intelligence will become an imperative for investors who want to create value and strategic differentiation in the real estate industry . According to McKinsey , the continuing trend toward more emissions regulations , net-zero commitments , and tenants demanding more sustainable buildings will fuel the need for data that brings more visibility into climate-related risks . This type of climate intelligence will help real estate investors make more informed decisions when looking at their portfolios . Some real estate companies are already conducting climate stress tests on their portfolios to gauge whether a property ’ s
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COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2022