How Climate Change Could Change CRE

Real estate developers are responding to the threat of climate change with design changes and new technologies, said the Urban Land Institute, Washington, D.C.

ULI Global Chief Executive Officer W. Edward Walter said real estate developers and designers are increasingly seeking to make buildings and neighborhoods more adaptable to environmental conditions and comfortable for occupants. “This presents an opportunity to reduce climate risk and create better communities in the process,” he said.

Zillow, Seattle, found nearly two-thirds of people between 18 and 34 believe their homes or communities will be affected either “somewhat” or “a great deal” by climate change in their lifetimes. While Zillow reported disagreement on the effects of climate change, it found consensus around possible solutions. More than two-thirds of those surveyed would support new laws to prevent developers from building in high-risk areas prone to natural disasters and more than six in 10 said they support making structural improvements to structures to mitigate damage. “Millions of Americans are sensitive to the risks associated with climate change and believe they will face them in their lifetimes,” said Zillow Director of Economic Research Skylar Olsen.

The ULI report, Scorched: Extreme Heat and Real Estate, said more cities in the United States are or will be at risk of higher temperatures due to climate change and increased urban development. It cited a range of possible options commercial real estate developers could employ, including building with light-colored surfaces and materials, providing increased shade from built and natural canopies and building “heat aware” building envelopes.

For example, vegetation-covered “green roofs” can be 30 to 40 degrees cooler than conventional rooftops, ULI said. And the average payback time for installing a green roof on commercial buildings has fallen to two years.

“Widespread adoption of mitigation strategies could help reduce the urban warming trends currently occurring in cities, leaving them to contend with a more manageable one-degree to two-degree Fahrenheit increase rather than the five-degree to 10-degree increase currently projected for some cities due to the urban heat island effect,” ULI said.

Investing in heat mitigation technology can lead to other benefits including an improved tenant experience, reduced operating costs and additional foot traffic in retail environments, ULI said. “For instance, being ‘heat-resilient’ can potentially reduce the likelihood of construction delays caused by extreme heat and increase support from investors, public officials and other stakeholders,” the report said. “In addition, heat-resilient projects can reinforce the developer’s reputation for high-quality green design and they can become heavily patronized places of refuge during extreme-heat events, leading to enhanced asset value, higher rent premiums and lower vacancy rates. In addition, the operating costs can decline due to less frequent replacement of heat-damaged materials, lower utility costs, and higher chance of sustained operations during extreme heat events.”