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Cushman on 2020: climate change will affect valuation, leasing and investment markets

For 2020, Cushman has identified three key environmental trends for real estate: new legislation, investor caution on environmental-related issues and the utilisation of data to help assess climate risk.

Andrew Phipps Head of EMEA Research & Insight, at Cushman & Wakefield explains:

“Legislators are still pressing the real estate industry: across Europe, we identified more than 1,500 national policies and measures at mitigating climate change in ways connected to real estate – and this will increase over the next decade. Energy consumption and energy supply made the majority (44%) of the reported policies, followed by transport (21%). Improving energy efficiency of buildings is among the main goals of these policies.

“Investors are still waiting for occupiers to confirm a strong demand for ‘green’ properties. Investment managers are increasingly aware that long-term profitability will suffer if they are not able to include climate risk in their pricing, but they do not necessarily understand climate risk well enough to accurately price in climate-oriented features. As with electric cars or organic vegetables, people want these and know they should have them – but they don’t necessarily want to pay for them.

“There is, however increasing evidence that corporate occupiers are willing to pay increased or premium rents for such assets. Investment managers are increasingly aware that, if they are not able to include climate risk in their pricing, this will probably have impacts on their portfolio as it could hurt the long-term profitability of their assets. But market players do not sufficiently understand climate risks enough to price them in today.

“Various technologies are emerging to help investors price properties with climate features more accurately. These tools analyse the vulnerability of assets to climate risks, as well as the impact of such risks on market value; data is then used to guide the programming, planning and costing of necessary mitigation work, alongside an estimate of the consequent financial impact.

“Investors will increase their interest in analysing climate change and related risk as this will affect the profitability of their portfolios. Above all, institutional investors with long term strategies, like Sovereign Wealth Funds (SWF) and state-owned banks.”

james.wallace@realassetmeda.com