Climate risks and their implications for commercial property valuations
| DOI | https://doi.org/10.1108/JPIF-02-2022-0018 |
| Published date | 13 April 2022 |
| Date | 13 April 2022 |
| Pages | 430-443 |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
| Author | Sarah Louise Sayce,Jim Clayton,Steven Devaney,Jorn van de Wetering |
Climate risks and their
implications for commercial
property valuations
Sarah Louise Sayce
Department of Real Estate and Planning, Henley Business School,
University of Reading, Reading, UK
Jim Clayton
Brookfield Centre in Real Estate and Infrastructure, Schulich School of Business,
York University, Toronto, Canada, and
Steven Devaney and Jorn van de Wetering
Department of Real Estate and Planning, Henley Business School,
University of Reading, Reading, UK
Abstract
Purpose –The authors outline a framework that captures the channels through which physical climate risks
could affect cash flows and pricing of income-producing real estate. This facilitates detailed consideration of
how the future performance of real estate investments could be affected by such risks.
Design/methodology/approach –This is a literature-based investigation that draws on work
commissioned by UNEP-FI (Clayton et al., 2021a, b). It extends this work to consider in more detail the
channels through which climate risks may impact property performance and the implications for the valuation
community.
Findings –Recent empirical studies have identified more instances where pricing is reflecting both current
and anticipated climate risks. Market valuations cannot properly incorporate climate risk without clear
evidence that it is priced by market participants, but valuers can advise clients on the potential for future
impacts.
Research limitations/implications –While inferences can be made from studies of residential real estate,
more research on commercial real estate pricing and climate risk is required to assist valuers and their clients,
as well as other stakeholders in the real estate market.
Practical implications –Differences between a Market Value and an Investment Value context are
considered, and how valuers could and should account for climate risk in each setting is discussed with
reference to existing professional standards and guidance.
Originality/value–The article synthesises a wide range of literature to produce a framework for the channels
by which real estate values could be influenced by climate risk.
Keywords Appraisal, Climate change, Climate risk, Sustainability, Valuation
Paper type Research paper
1. Introduction
The effects of climate change and the resulting risks to human life and habitation are
increasingly visible. There has been long-standing interest around the impact of weather-
related events and other natural catastrophes on property values and property market
outcomes. Attention in the literature has shifted from analysing just the current risks of
floods, fires or storms to the implications of climate change for future risks, either because of
rising sea levels or changing weather patterns. Notably, the devastation caused by Hurricane
JPIF
40,4
430
This paper is dedicated to the memory of the authors’friend and colleague, Sarah Sayce, who passed
away while the paper was being written. It develops unfunded research that was originally carried out
for the United Nations Environment Programme –Finance Initiative (UNEP–FI). The authors would like
to thank Matthew Ulterino at UNEP–FI for his support and feedback on this research.
Received 23 February 2022
Revised 25 March 2022
Accepted 26 March 2022
Journal of Property Investment &
Finance
Vol. 40 No. 4, 2022
pp. 430-443
© Emerald Publishing Limited
1463-578X
DOI 10.1108/JPIF-02-2022-0018
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