Adapting to Climate Change: A Look at Real Estate Developers and Investors

As a result of rising and warming seas, hurricanes and flooding are occurring more frequently and with greater intensity, exposing the real estate sector to considerable physical and financial losses. Scientists expect these trends to accelerate over the coming decades. Most real estate companies have become very focused on sustainability – in particular, mitigating environmental impact through reducing buildings’ carbon footprint. This project viewed the extent to which commercial real estate investors and developers are preparing for the effects of climate change. The team conducted literature reviews and interviewed developers, institutional property owners, insurance companies, scientific firms focused on rising sea levels, and environmental risk consultants.  

Despite significant losses due to climate perils, the Capstone team found that the industry is still largely focused on mitigation and has only taken preliminary actions regarding adaptation. Owners tend to rely heavily on their insurers (and often on outdated flood maps) to assess and price the risk. As flooding becomes increasingly common in most coastal markets and as insurers become less willing to cover the risk (or will price accordingly), owners are likely to be under increasing pressure to adapt to the new environment.  Hence, the Capstone team recommended four ways real estate companies can enhance their readiness: develop their own property by property climate risk assessment; analyze climate risk better and price it properly; bridge the gap between data users and data providers; and engage with governments and research institutes in designing and implementing city-wide resiliency plans.