Natural disasters hit real estate hard. Wildfires or storms demolish homes, wreck office buildings, and devastate factories. Building ruins serve testimony to losses in banking and insurance. 

Tropical storms and the accompanying flooding typically result in the highest losses. In 2005, Hurricane Katrina caused record loss of US$ 205 billion, roughly half of which was insured. Yet in the first half of this year, U.S. wildfire loss reached an all-time high of some US$ 53 billion, according to Munich Re NatCAT Service. The insured loss was US$ 40 billion.

For investors, mitigating the potential financial consequences of climate change such as loss and portfolio devaluation, is key. Investors need to know when and where the next natural hazard event is likely to strike. Even more importantly, their properties must be prepared to withstand  such blows. 

The solution lies in risk management, climate adaptation measures, and resilience. Adapting to present and future climate risks opens up opportunities for investors and property owners.

The JLL “Future of Work” survey shows that by 2030, 45% of leading companies in the corporate real estate sector will only select buildings that can withstand climate events. In their decisions, investors weigh considerations that include:

• Valuation. Climate risks could significantly lower the value of properties and portfolios.
• Vulnerability. Areas prone to hazards are typically much less attractive.
• Regulations. ESG disclosure rules will require stricter building and performance standards.
• Maintenance costs. Repair expenses are usually higher in regions prone to extreme weather.
• Insurance costs. Insuring high-risk properties may become prohibitively expensive.

Studies show: Every dollar invested results in 10 dollars return (WRI). Climate change adaptation represents a significant opportunity for investors. The investment value of climate change adaptation measures could rise from US$ 2 billion today to over US$ 9 billion by 2050, according to a study by Singapore's sovereign wealth fund (GIC). Some of this investment will flow into real estate.

Adaptation measures include flood protection, storm shutters, impact-resistant windows, improved roofing and drainage, and fire-resistant materials. These serve to mitigate the risk of extreme weather events. Such measures are also frequently reflected in insurance premiums or credit rates for a loan.

Through adaptation, property owners safeguard their assets from longer-term risks, manage future costs, and protect assets from being stranded. The assets remain attractive for tenants and  investors.

Making investment decisions based on sound climate risk data  is essential in real estate. With Munich Re’s Location Risk Intelligence, investors can pinpoint which locations, assets, and portfolios are at climate risk and need attention. 

Leveraging climate risk scores, easy-to-understand map visualisations, and future scenarios empowers real estate investors to:

• Build expertise to future-proof investments and understand the expected losses from climate risks
• Safeguard existing portfolios and acquire less vulnerable assets
• Increase property attractiveness through targeted measures
• Take climate risk into account for CAPEX planning
• Tailor climate-compliant construction to specific locations
• Report on physical climate risks as required by regulators, stakeholders, and investors

With accurate risk data, investors can seize new opportunities. Investing in climate adaptation and resilience goes beyond mitigating risks. It creates value and ensures long-term success of real estate investments in a changing climate.