How Climate Change Is Shaping Real Estate Investments

18th October 2021
Esri UK

How Climate Change Is Shaping Real Estate Investments

In a move that could alter the practice of buying and selling homes, real estate broker Redfin is adding climate risk scores to sale listings. Home buyers can now evaluate climate risk the way they assess local schools, tax rates, and neighbourhood appeal.

The new data addresses the public’s growing interest in understanding the shifting nature of risk. It’s a pursuit shared by business leaders, many of whom already use geographic information system (GIS) technology to anticipate climate shifts and adjust investment strategies accordingly.

Article snapshot: A major real estate player introduces climate risk scores for homes listings, and the effects could ripple through industries far beyond residential real estate.

Climate Risk on Buyers’ Minds

Nearly 80 percent of current and potential homeowners told Redfin they’d be hesitant to buy a home in an area with frequent or intense natural disasters. In the same survey, nearly half of people planning to move in the next year indicated that extreme temperatures and increasing natural disasters played a role in that decision.

Given the weather disruptions that have already beset many areas of the world, it’s no surprise that home buyers and businesses are considering climate risk in their investment decisions. In each of the past 40 years, the United States averaged seven weather disasters costing more than $1 billion (adjusted for inflation). But in just the past six years, the average number of $1 billion events per year was more than 15, according to NOAA data. These events can devastate homes, businesses, neighbourhoods, critical infrastructure, and supply chains.

GIS-generated location intelligence has long helped companies respond to weather events. Now, its ability to model long-term weather patterns and related climate risk could shape real estate investments for individuals and organisations.

Assessing Climate Risk—A New Normal for Real Estate?

Climate risk data similar to the kind Redfin now provides is not only valuable in home buying but also increasingly important to commercial property investment decisions. Commercial real estate leader CBRE estimates that 35 percent of global REIT properties are exposed to hazardous climate events such as inland flooding and hurricanes.

To create more resilient investments, real estate investors are increasingly using climate risk data to make decisions in locations susceptible to climate change, according to the Urban Land Institute. But they’re not evaluating climate risk alone; they’re also factoring in efforts by cities to increase resilience to climate change.

In industries like commercial real estate, telecom, and retail—where choosing the right location is key to the bottom line—predicting climate impacts on potential investments is becoming a competitive advantage.

For example, engineering, design, and project management firm Atkins uses GIS technology to perform climate modelling, drawing on the precision of GIS-produced location intelligence to steer clients toward safer investments and ways to fortify their supply chains.

Atkins’ simulations use predictive analytics to create location intelligence on climate scenarios. The resultant GIS map shows how tropical storms or extreme temperatures might disrupt the flow of shipping containers across global supply lines years from now.

Tailoring Investments to Population Growth or Decline

As more people turn to climate change data for guidance on where to live and work, businesses are keeping a close eye on how populations shift. The location of everything from a new retail storefront to a same-day fulfilment centre to an office complex could turn on those outcomes.

Over the past 18 to 24 months, business planners have worked to understand population migrations, with varying levels of success. The COVID-19 pandemic, remote work, and climate-driven location decisions like those observed by Redfin have muddied the waters. But organisations with high levels of location intelligence have enjoyed more clarity.

They’re using GIS analysis to detect shifting sales locations, changing travel patterns, and cities and neighbourhoods where populations are growing or declining. As climate risks alter the places where people buy houses and organisations build businesses, industry leaders will use that clarity to adjust their investments.

This article originally appeared in the global edition of WhereNext.