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