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There have been constant warnings of severe weather conditions, natural disaster footage on the news, and a growing number of weather-related property losses, throughout the years. In fact, the U.S. has sustained 348 weather and climate disasters since 1980 where overall damages/costs reached or exceeded $1 billion (including CPI adjustment to 2023). The total cost of these 348 events exceeds $2.5 trillion, according to research by the National Centers for Environmental Information. The real impact of climate-related events can be felt in every aspect of the real estate market, including rising insurance costs, prices, and major declines in popularity amongst specific regions. Higher temperatures lead to more extreme weather conditions and an increase in large-scale catastrophes, like massive hurricanes, wildfires, storms, and flooding. Understandably, the costs and conditions of properties are becoming more difficult to manage and thus, putting more pressure on the real estate market on a yearly basis. Furthermore, the number of weather-related catastrophes in the US is growing consistently. In 2022 alone, there were 18 natural disasters in the U.S. that resulted in at least $1 billion in total economic loss. According to Yardi Matrix, insured natural disasters topped $100 billion since 2017 – meaning that insurers’ models are not likely able to keep pace with the growing frequency and severity of catastrophes because of climate change. The cost of repairing properties from weather-related events and the increase in construction costs due to inflation, labor, and supply-chain chains, to name a few, are important factors to consider, as well. Insurance Rates in High-Risk States States like Florida and Texas are considered high climate-risk states because they are constantly hit the hardest by storms, hurricanes, freezing temperatures, and so on. Insurance rates are increasing across the nation, but some insurers in high-risk states are increasing rates by 45-100% or avoiding the area altogether. According to research by Yardi Matrix, not only are insurance costs increasing overall, but insurers are covering less wind limit on replacement costs with large increases in deductibles, new exclusions for damages such as mold or flood endorsements, and limits on payouts. Climate Change & Its Impact on Property Owners As explained by Forbes, temperature increases also have a direct impact on the costs of managing a rental property. It's projected that more tenants will rely on electricity to run fans and AC systems to stay cool. Coupled with a significant increase in water usage, these trends place a higher burden on the electrical grid and city resources. It’s important for property owners to note that they will pay an increased cost for those utilities along with their tenants. The more demand for these resources, the more expensive they become. The rising costs to insure properties is another factor contributing to potential delinquencies. When insurance is inexpensive there’s less burden for an owner, but as rates escalate, it can create hardships for some owners. Some in the industry are seeking reform of insurance requirements by lenders, while other solutions may involve the industry utilizing modeled loss since using a risk model basis rather than insured value would likely benefit property owners. Ultimately, it requires property owners to manage the costs of business while keeping an eye on the weather.
If you have read any article on the #office sector for 2023, you know that the future remains uncertain nearly three years after the pandemic disrupted the industry. According to the latest CommercialEdge office report, 2023 will bring further uncertainty to the office sector as we enter the post-pandemic phase. Although some companies are becoming more aggressive about returning employees to the office, others have fully embraced hybrid and remote work practices.
On October 12th, 2022, Coldwell Banker Commercial hosted its sixth CBC Chatter, a virtual quarterly series hosted by Senior Vice President and Managing Director Daniel Spiegel to discuss hot topics in the world of commercial real estate.
Residential properties are responsible for roughly 17-21% of energy-related carbon emissions globally, reports the British Broadcasting Corporation (BBC). That figure covers everything from the electricity we use to power televisions and other electronic devices, as well as the fuel we use to heat water and cook. Take into account the carbon emissions released in the manufacture of concrete, metal and other building materials along with the construction process itself, and it’s clear that housing has a considerable role to play if the world is to meet its ambition to reduce global carbon emissions to net zero by 2050.
CBC often discusses and focuses on the importance of sustainability in real estate. Climate change is a growing issue, with the real estate industry working to find solutions to slow the impact. It is worth noting, for context, buildings are the largest contributor to global warming. Across commercial and non-commercial buildings, the real estate sector accounts for 38% of all greenhouse gas emissions. According to J.P. Morgan’s report, “Buildings reimagined: Why carbon neutral property is the future of real estate,” a large proportion of today’s commercial buildings date back to the 1970s, when environmental issues were less of a concern. And because most of these properties will still be standing in 2050 – the year many governments have pledged to reach zero- carbon targets – they will need to be decarbonized by reducing the amount of carbon compounds they omit into the atmosphere. In part one of the Climate Change Mitigation in Real Estate series, we will take a closer look into how owners and managers can work to improve a building’s carbon footprint.
In part 1 of our climate change series, we explored how the real estate and construction sectors are making efforts to reduce their negative impact on the environment, and how climate change impacts investor’s business decisions. In part two, we will discuss the short- and long-term implications of climate change on real estate, including adoption of corporate Environmental, Social & Governmental (ESG) initiatives, as well as what markets are the most vulnerable.
Climate change is slowly but surely making its devastating impact all over the world. In two parts, we will explore how the real estate and construction sectors are making efforts to reduce their negative impact on the environment, how climate change impacts investor’s business decisions, the short- and long-term implications of climate change on the real estate sector, including adoption of corporate Environmental, Social & Governmental (ESG) initiatives, as well as what markets are the most vulnerable.
In the world of commercial real estate, investing, and beyond, “ESG” is becoming a frequent topic of discussion. But what exactly is ESG? Why is everyone talking about it? And what does it mean for your business? ESG stands for Environmental Social and Governance, and refers to the three key factors when measuring the sustainability and ethical impact of an investment in a business or company. More specifically, ESG is a generic term often used in capital markets and is commonly practiced to evaluate the behavior of companies, as well as consider their future financial performance. We are seeing investors take social responsibility seriously by diligently researching companies’ ESG profiles and using ESG criteria to screen potential investments. The graph below describes what falls under the ESG umbrella.
As we all know, 2020 was an incredibly challenging year. A variety of industries were greatly impacted by the changes present by the COVID-19 pandemic, commercial real estate included. For the first time, employees started working from home, meetings were hosted via zoom, and all events were cancelled. As the economy stalled, many businesses and property owners found themselves negotiating with both tenants and lenders on rent relief and loan modifications.
Those that fled congested cities during the COVID-19 lockdowns are beginning to find their way back to luxury multifamily buildings. GDP forecasts indicate apartment occupancy rates will return to 2019 levels by the end of the year. Now, however, many people’s criteria for apartment living looks different in a post-pandemic world.