Extreme weather is impacting real estate portfolios

Heatwaves, floods and storms are becoming very common in many parts of the world

Climate change is negatively affecting the value of real estate, causing investors to reassess their holdings, according to a survey of property investors.

Almost half of real estate investors have seen extreme weather affect their portfolios, the annual Insights Into Real Estate Investment Sustainability Survey (IRIS) found.

The survey, conducted by sustainability services company Evora Global, found 46% of real estate investors reported a climate-related impact on their holdings.

A fall in property values, income and occupancy rates, as well as rising insurance costs, are some of the biggest reported effects of climate change on property portfolios.

As climate risk factors could accelerate how climate change affects value, property investors increasingly have to consider future changes that could undermine historical market comparables data.

Sonny Masero, chief strategy officer at Evora Global, said real estate investors are waking up to the fact climate change is happening and is affecting their assets.

He said: “Last summer we had extreme heat across Europe. Floods and storms are becoming very common in many parts of the world. To suggest this isn’t going to harm investments is folly. 

“Climate risk is a real and present danger and investors are going to have to make changes as a result.”

Property climate change data

Masero urged investors to start planning for the future and to drop the business as usual approach.

He said: “Our world is changing fast, it’s essential that investors keep up. To ensure their fiduciary duty is being carried out, their investments need to be made in a forward-thinking way, informed by climate science and observed data.

The IRIS report, which examined the views of 102 investors responsible for $3.3trn (£2.6trn) of assets globally, found ESG data is now being used by practically all investors. 

However, in a “cause for concern” just 11% are confident in the quality of the data being supplied. 

Masero said: “I do believe we are seeing a shift in the minds of investors, where climate risks are being seen as much more important than they have been previously. 

“The world’s biggest asset owners now want to understand how exposed they are to climate risks. Those with the most to lose appear to be the most concerned and actively starting to price -in climate risks,” he said.