The effects of climate change on commercial real estate are not a future issue, to be dealt with later – they are here now, and affecting every aspect of owning and operating buildings, including the ability to finance transactions, to obtain insurance for properties, and to realize attractive rents. Real-estate owners are taking steps to measure and manage this risk, and to transition their properties to low- or zero-carbon assets to help prevent further escalation of climate impacts. These were some of the key takeaways of a recent webinar put on by the MIT CRE Climate Change and Real Estate Initiative, in which I had the opportunity to participate, alongside moderator Juan Palacios, Director of MIT’s Climate Change Initiative, Professor Bill Wheaton from MIT and Kevin Fagan from Moody’s.
My colleagues on the panel shared research and data demonstrating that properties in South Florida are seeing their value impacted by their vulnerability to flooding, which is becoming the ‘new normal’ for certain locations as sea levels continue to rise; and that lenders and insurers are becoming increasingly sophisticated in assessing the risk of extreme weather events associated with properties they are asked to underwrite. The fact that Moody’s, one of the leading providers of risk analysis to lenders and investors, is now offering a tool to assess climate risk is a strong indication that awareness of this issue has become mainstream. In the same way that we’ve seen the investment community driving organizations to take action on emissions reductions, financing is poised to become a trigger for addressing physical climate risks.
Those risks will only intensify if global emissions are not reduced rapidly – roughly 50% by the end of this decade. Given that the built environment is responsible for nearly 40% of those emissions, achieving that goal is impossible without significant progress on reducing emissions from the construction and operation of buildings. In fact, per the Science-Based Targets initiative, in-use buildings should reduce emissions by significantly more than 50% by 2030, because compared to some other sectors, the techniques and technologies to do so already exist at commercial scale. These form the foundation of Colliers’ path to Net Zero for our clients: methods of reducing energy consumption, switching energy use to electricity, and ensuring that the electricity supplied is non-emitting. Different parts of the world are prioritizing different parts of this equation, driven by regulatory, economic and geographical variation. But progress in any place helps the technology improve and slide down the cost curve, which ultimately benefits everyone and paves the way to zero-carbon building stock. This was the key message from my section of the MIT session.
To date, most of the progress on decarbonizing buildings has been driven by voluntary action. Going forward, as new reporting requirements take hold in many jurisdictions – requirements that will impact all large global companies – a clearer picture will emerge of who faces the greatest risks (or opportunities), and who is doing the most to address them. The path to addressing climate risk in CRE is clear – it’s time to take action.
If you missed the webinar, you can watch it here.