According to Alicja Zajler, director of Valuation and Advisory Services at Colliers, although recently analysts have been focusing primarily on the impact of the pandemic, long-term trends on the property market are also shaped by another factor, namely climate change.
“The term sustainable development in real estate most often has positive connotations. Certificates granted to green buildings increase their prestige and appeal to future users. However, the environmental factor in property valuation also has its dark side. Climate change causes major problems, the scale of which is hard to estimate at this point. What is certain is that it is not a question of the distant future,” Alicja Zajler stated.
In fact, the climate change risk is already affecting market prices. According to a study by First Street Foundation released in 2008, houses exposed to the risk of floods in Florida, Georgia, North and South Carolina, and Virginia lost $7.4 billion in value from 2005 to 2017. New York Metropolitan Area suffered similar devaluation, having lost $6.7 billion in the period. The researchers emphasized that they took into account the impact of the economic crisis, i.e. the indicated loss of value had been caused by rising sea levels. The situation is similar in the commercial property market. As shown by recent studies in the USA, commercial properties in the areas affected by hurricanes lost 6 percent in value within a year after the storm and 10.5 percent two years later.
Even according to most conservative forecasts, climate change will intensify. Meanwhile, water levels by the New York coast are already around 30 cm higher than 100 years ago, the stormwater rise is more than a meter higher, and the scale and frequency of floods have risen as well. As a result, the properties so far located on the safe ground have become prone to the impact of natural disasters. Many organizations monitoring the natural environment are warning that the pace of change – from the melting Alpine glaciers and ice caps in the Arctic to all-time high temperatures – is faster than previously anticipated.
“A growing group of organizations is now looking for new tools and common standards, which will help the industry to improve climate risk assessment in the future. These include mapping (identification) of direct risk for the current portfolio and potential acquisitions as well as factoring in climate risk in due diligence and other decision-making processes,” Alicja Zajler added.