Property sector underestimates risk of extreme weather – report

The real estate sector needs to pay closer attention to the risks posed by extreme weather events to asset values, according to a new report by the Urban Land Institute (ULI).

Entitled Extreme Weather Events and Property Values, the report argues that although the industry is increasingly helping to tackle the causes of climate change, it is not paying enough attention to the risk posed to individual properties from single extreme weather events such as storms, floods or droughts.

The report was published to tie in with ULI Europe’s Real Estate Trends Conference in London on Thursday where a panel of industry experts will debate the impact of extreme weather events on the property industry.

It highlights that the number of extreme weather events has doubled globally since the 1980s, to an average of over 800 per year over the past decade. These events are increasingly threatening real estate values in areas prone to natural disasters and affecting the cost and ability of investors to insure their assets.

COSTS
Direct financial losses relating to real estate and infrastructure caused by severe weather events have tripled globally over the past decade and the costs to reinsurance companies now amount to $150 bn (€110.6 bn) per year. However, the report warns that the real impact on investors and the wider economy is even greater when consequential and indirect losses such as lower economic activity and reduced rents are taken into account.

‘The real estate sector has rightly paid considerable attention to addressing its contribution towards climate change,’ commented the report’s author Sven Bienert, Professor of Sustainable Real Estate at the University of Regensburg and ULI Europe’s Visiting Fellow on Sustainability. ‘However, less focus has been placed on understanding how individual weather events, often caused or exacerbated by climate change, affect real estate values and the ability of investors to continue to insure their assets. As a result, the financial uncertainties caused by extreme weather are being considerably underestimated by real estate investors.’

The report includes a new tool which enables investors to assess risk and calculate the potential Annual Expected Losses (AEL). In addition to the calculation tool, the report also outlines a number of key recommendations for real estate investors to protect their portfolios from the impact of extreme weather events.

Click here for the full report