Abstract
Commercial real estate investors prefer coastal, gateway, markets for liquidity, demand density, and durable returns. Yet, these areas are more vulnerable to the effects of climate change from more intense and frequent weather events such as hurricanes and typhoons as well as to gradual changes such as sea-level rise. Recognition is growing of the risks that these events pose to investment performance, but little is known about how this risk has impacted property values and returns when an event such as a hurricane occurs. This is the first study to analyze the impact on property values and returns from hurricanes causing the most significant damage by value over the past 30-plus years throughout the nation. Using individual property data from the National Council of Real Estate Investment Fiduciaries database, we find a significant impact on the value and rates of return, after accounting for any additional capital expenditures for repairs, for properties that are in areas impacted by a hurricane, relative to areas that were not impacted by a hurricane. These impacts vary by property type and can last for several years after the hurricane hit land in the area.
Highlights
Investor preferences for coastal, gateway, markets mean that many assets held by real estate investors are in cities more vulnerable to the effects of climate change
We find that there has been a significant impact on the value and rates of return, after accounting for any additional capital expenditures for repairs, for properties that are in areas impacted by a hurricane relative to areas that were not impacted by a hurricane
The hurricane dummy variable indicates that the property was in the core-based statistical areas (CBSAs) or division impacted by a hurricane on the quarter the hurricane made U.S landfall
Summary
Investor preferences for coastal, gateway, markets mean that many assets held by real estate investors are in cities more vulnerable to the effects of climate change. An increase in the perceived risk of hurricanes can result in a reluctance by institutional investors to add capital to that area, which can lead to a negative impact on property values and returns well after the hurricane to all properties and property types in the area that was impacted by a hurricane This is the first study to analyze the impact on property values and returns from all the significant hurricanes that occurred over the past 30-plus years throughout the nation. We find that there has been a significant impact on the value and rates of return, after accounting for any additional capital expenditures for repairs, for properties that are in areas impacted by a hurricane relative to areas that were not impacted by a hurricane This can last for several years after the hurricane hit land in the area
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