• Shifting climate conditions are increasingly considered among the factors influencing real estate decisions. Physical climate risk is becoming a key investment consideration.
• Buildings that are resilient today will be the quality assets of tomorrow. Vulnerable buildings risk becoming stranded assets or may lose value faster than expected.
• Tools such as Location Risk Intelligence help property investors to integrate physical climate risks into asset lifecycle management strategy in a clear and practical way.

Climate change is shifting the rules of the built environment. Our new report, co-authored with property investment and management firm Jones Lang LaSalle, (JLL), “Preserving property value and managing insurance costs in a changing climate”, highlights key concerns of property investors, in particular, climate risk at the location level.  

Natural hazards rarely decide an investment on their own, but they can influence the property’s desirability. Particularly where extreme weather events are becoming more frequent and more intense, investors and developers are rethinking how they evaluate assets. Climate-impacted factors including loan conditions and insurance affordability playing a bigger role in decision-making. 

Climate risk influences property value in several ways. Potential consequences of risk exposure include the threat of standard assets and repair costs following extreme weather events. Further financial effects include falling returns and higher insurance premiums.

Other expenses are indirect, such as longer permitting times or stricter disclosure rules. Developers could be faced with new standards for building performance and the need to install adaptation measures. The more investors know about their current and future climate risks, the better prepared they will be.

According to the report, commercial real estate in popular European cities such as Barcelona or Milan sit in locations with elevated climate risk. These are places where investors need deeper location assessment and up-to-date climate data and analysis.

In Europe’s coastal regions, many cities are at risk of flooding, storm surge, or sea-level rise. Additionally, recent data shows that the continent is warming faster than the global average. This means that extreme heat and water scarcity will become central issues for European buildings in the coming decades. These physical climate risks affect cooling capacity and operational continuity.

With Location Risk Intelligence, investors can assess physical climate risk at asset and portfolio level. Transparent data enables them to understand how hazards may affect their properties today and in the future.

Understand: The Region Scoring feature enables you to quickly assess and benchmark the risk exposure of locations during the due diligence process, even without asset-level data. You can boost risk management across administrative areas, CRESTA zones, or postal codes, for example.

Manage: Using the Expert variables in the Climate Change Edition, you get detailed assessment of water availability/scarcity, or other relevant perils to support relevant action.

Measure: Within the Climate Financial Impact Edition, metrics including Climate Expected Loss allow you to quantify the expected annual loss from physical property damage and ssafeguard investment.

The interrelated considerations of insurance and banking are significant for property investors. Insurance premiums for office buildings in Germany, for example, have risen by 8% to 12% per year on average since 2018, notes the report, citing data from the country’s Federal Association of Property Managers.

Banks are also paying closer attention to climate risks. A bank survey by JLL in 2024 shows that the significance of climate risks in lending decisions will double in five years’ time. Flooding, storms, and heat were named as top concerns. 

At the municipal level, investors are asking how resilient cities really are. They question how susceptible properties are to natural hazards now and in the decades to come.

Property developers are beginning to assess whether cities take climate adaptation seriously. This includes flood defences, heat mitigation plans, and water security measures, among others. Cities that invest in such infrastructure remain more attractive for long-term capital.  

Resilience planning helps investors build clearer strategies. For example, cities that invest in flood protection often maintain lower economic losses over time. This reinforces why adaptation measures are becoming a competitive advantage for entire urban areas. 

Use this ten-point checklist to structure climate risk due diligence:

1.   Assess location exposure with current and future climate scenarios.

2.   Review vulnerability of portfolios and assets.

3.   Verify insurance affordability and consider  long-term trends.

4.   Check lender requirements and how climate risk affects financing terms.

5.   Analyse operational resilience, such as cooling capacity and water access.

6.   Include climate risk in pricing models for acquisitions and renovations.

7.   Evaluate regulatory expectations for ESG and building performance.

8.   Review potential resilience measures and their impact on future costs.

9.   Check municipal adaptation plans and infrastructure investment levels.

10. Consider climate risk across the entire asset lifecycle with a focus on resilience. 

Climate risk is increasingly a core component of real estate strategy. Buildings in lower risk regions typically secure financing more easily, maintain affordable premiums, and preserve value. Cities that invest in adaptation will remain competitive in the decades to come.

Achieving long-term value will require collaboration across sectors between developers, insurers, banks, and municipalities. For investors, this is an opportunity to strengthen their portfolios and position themselves in a changing market. Climate resilience will define tomorrow’s prime assets.