Climate Change is Here, Let’s Prepare

Are you as astounded like me with the:

• Record heat wave in October
• An Unusually dry October
• Unusually Rough Seas
• Unusually High tides

If these are the first salvos of ‘Climate Change’ then we are in for some serious challenges. And this is significantly important for the Real Estate Industry. Probably more important than anything else, including a challenging economy.

Climate change could impact our shoreline communities such as Westmoorings, Port of Spain, Caroni, San Fernando, Scarborough, Crown Point and their environs, affecting demand and prices for properties in these areas.

Already there are International Agreements being signed that will stipulate building codes to ensure Sustainable Homes, Sustainable Transport and Sustainable Cities.

As an Industry we have to start working on some guiding principles. AREA can lead the way.

Internationally Real Estate market conditions are already changing in response to new and proposed climate regulations.

Leading international investors believe green building codes will impact property values.

Market participants believe climate change has the potential to impact investment risk and the financial performance of Real Estate assets.

As an Industry we have to start thinking about protecting value in real estate, managing investment risks from climate change.

There could be significant changes in market behaviour that savvy investors believe will impact financial performance. This includes an increased demand for low energy properties, requiring minimum sustainability standards; introducing formal ‘green’ clauses in standard tenant leases and sustainability risk assessments prior to acquisition. In response, banks may start requesting sustainability risks in valuation analysis.

Rather than wait for these things to impact us before we start planning as an industry, we should begin to embed green building programmes in our Real Estate investment and asset management practices. And develop sector initiatives and tools to mitigate Climate Change risks.

Recently the European Parliament voted for an 80% cut in energy used by buildings relative to 2010 levels by 2050. This is a very far sighted approach. Should we in the Industry be lobbying Government on similar guidelines?

Should we be guiding our members to ensure real estate portfolios are managed in a way that addresses investment risks and opportunities arising from climate change and sustainability?

These are difficult questions. But in order to protect the long-term value of real estate investments, it is part of institutional investors and their investment managers’ fiduciary duty to understand and address these changes and new risks and to take advantage of new market opportunities. And one opportunity is for AREA to lead this initiative.

Here are a few Key Real Estate investment risks and opportunities from climate change and sustainability provided by IIGCC Institutional Investors Group on Climate Change that we as an Industry should consider.

“• Climate, energy and building regulations could bring about obsolescence and depreciation faster than anticipated. Investment in operation, maintenance and refurbishment need to be in tune with these changes.

• Occupiers demand for high performing green assets could impact tenant retention, length of void periods and lease conditions. A clear understanding of changing tenants’ needs and preferences would be required to adapt portfolios.
• Active building management can help lower operating costs and total occupancy costs, in an environment where energy and natural resource prices are increasing.
• Sustainable design and refurbishment, improves resilience, can help reduce costs, while managing natural resource constraints. The use of healthy and sustainable materials improve internal quality and occupiers’ health and well-being.
• More frequent and extreme weather and flooding events affect building infrastructure and its internal components. Financial impacts can be mitigated by design, flood management and disaster preparedness.”

We leave you with a quote from EUROPEAN COMMISSION PRESIDENT JEAN-CLAUDE JUNCKER on the signing of the Paris Agreement.

“Today the world is united in the fight against climate change. Today the world gets a lifeline, a last chance to hand over to future generations a world that is more stable, a healthier planet, fairer societies and more prosperous economies.”

Are we as an Industry ready for this challenge?