Climate Change Risks and Impacts on Real Estate

One of the current observables of global warming is an increase in the frequency, intensity, and impact of extreme weather events. The Earth’s rising average temperatures fuel stronger storms, deadlier floods, hotter heatwaves, and drier droughts. However, of all the events enhanced by climate change, none is as critical and directly correlated to global warming as sea-level rise. Expected sea-level rise (SLR) modeling and prediction due to possible climate change scenarios is a crucial part of climate change research.

Intergovernmental Panel on Climate Change (IPCC) published a landmark report based on and bringing together the latest climate change research for the consideration of the policymakers at the 26th UN Climate Change Conference of the Parties (Cop26) that will take place in Glasgow on 31 October – 12 November 2021. As addressed by the latest IPCC report, the question is no longer whether SLR will exceed 0.8 m, but rather when will it exceed, by 2100 or later. The newest research states that the highest risk regions are lowland tropical regions, tropical Asia, tropical America, and tropical Africa. They predict that events that occurred once per century in the past are much likely to occur annually by 2100.

Increased sea levels will directly prevent living in the coastal zones and adversely affect the coastal communities with an increased frequency of flooding and storm surges. Other communities further from the coast will also be affected by extreme weather events.

In the coming years, extreme SLR will have its highest economic toll on the real estate and construction sectors. Cities, infrastructures, buildings, and building materials will have to be cleverly designed and adjusted to the expected risks that increased extreme weather events will pose. The primary concern will be the buildings at the low-lying coastal areas, which should be either removed or restructured to have adjustable building foundations in case of extreme SLR. Other concerns related to the indirect consequences of the higher global temperatures would be the need to re-plan the cities and the structures according to the expected conditions. For example, the energy infrastructures should support the increased usage of building air conditioners during longer summer heatwaves. Other examples could be the need for increased capacity for building water usage along extended periods of drought. Stronger storms and increased occurrence of wildfires will require more advanced building materials with higher resilience.

In order to achieve the expected transformations in the cities, the real estate and construction sectors will have to move quickly to adapt to new construction options and increase their R&D investments substantially. Here, as would be expected, nothing would be possible without government support, such as new climate change policies, encouraging tax reduction benefits, or extra funding options for R&D. This is a challenging task, but it is no longer optional.

The investment costs for the adaptation to extreme weather conditions will be reflected in the real estate prices. Real estate companies that can adapt to new ways of working and combine their real estate expertise with artificial intelligence (AI) for forecasting and strategic decision making will gain an advantage over their competitors. The companies that can use advanced data analytics techniques, such as deep learning, to incorporate land elevation data or address level geographic features data to their decision-making process will have the most realistic valuation of their assets. The future hints that real estate companies also need data scientists to gain better insights into new market developments and perform AI-driven decision-making.

Dr. Burcu Aykaç Fas

References

Hooijer, A., & Vernimmen, R. (2021). Global LiDAR land elevation data reveal greatest sea-level rise vulnerability in the tropics. Nature Communications, 12(1), 1-7.

Oppenheimer, M., B.C. Glavovic , J. Hinkel, R. van de Wal, A.K. Magnan, A. Abd-Elgawad, R. Cai, M. Cifuentes-Jara, R.M. DeConto, T. Ghosh, J. Hay, F. Isla, B. Marzeion, B. Meyssignac, and Z. Sebesvari, 2019: Sea Level Rise and Implications for Low-Lying Islands, Coasts and Communities. In: IPCC Special Report on the Ocean and Cryosphere in a Changing Climate [H.-O. Pörtner, D.C. Roberts, V. Masson-Delmotte, P. Zhai, M. Tignor, E. Poloczanska, K. Mintenbeck, A. Alegría, M. Nicolai, A. Okem, J. Petzold, B. Rama, N.M. Weyer (eds.)]. In press.

https://www2.deloitte.com/pl/en/pages/real-estate0/articles/knowing-what-others-dont-gaining-a-competitive-edge-in-real-estate-with-AI-driven-geospatial-analytics.html

https://www2.deloitte.com/xe/en/pages/finance/articles/technology-enabled-forecasting-real-estate-sector.html

https://www.theguardian.com/environment/2021/jun/29/risk-from-sea-level-rises-unless-emissions-reduced

https://www.theguardian.com/environment/2021/jun/23/climate-change-dangerous-thresholds-un-report

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