COVID-19 and Climate Change: Impact on Real Estate Markets and Strategies
9th July 2020

Real estate’s biggest challenge

Speaking as a panellist at this webinar, Abigail Dean of Nuveen Real Estate stressed that while COVID-19 poses a huge challenge to the global economy today, climate change is an even bigger one in the long term and requires a massive effort by everyone to deal with it.

In his opening presentation, Dr James Nixon of Oxford Economics pointed out that current government policies will not be enough to limit further warming, as a sharp reduction in carbon emissions is needed to achieve the 1.5 degree target set in the 2015 Paris Climate Agreement.  Economically, a 2 degree increase could mean a 7.5% drop in world GDP, with the impact likely to be much greater in the poorer southern hemisphere. 

The building sector represents one of the biggest gaps in government policy, said Nixon, and there is a big risk that carbon intensive assets will get ‘stranded’, with their values severely impacted. The UK government needs to encourage the overhaul of the electricity grid and planning systems, but its low-tax and small government approach effectively supports carbon intensive industries.  Dean agreed that government needs to act to align diverse property-owning interests by helping them understand the carbon intensity embodied in buildings and adapting infrastructure to make best use of existing technologies.

Polled by webinar moderator Joanna Turner of Canada Life Investments, the audience thought the property industry was either ‘not prepared at all’ to deal with the climate crisis or ‘OK, but could do better’. There is clearly huge room for improvement. 

For many investors, ESG and climate change issues have become even more important during the COVID crisis, according to Paul Sutcliffe of EVORA Global.  However, most do not yet have net-zero carbon strategies in place, nor do they know exactly how much carbon their property portfolios are producing. Collecting this data is clearly crucial for developing strategies to reduce and offset emissions. Sutcliffe also stressed the need to incorporate climate change into the planning regime – something that the post-COVID simplification of planning mooted by government may not encourage. 

Agricultural property also has an important role to play. Emily Norton of Savills talked about a ‘Virtual Farm model’, which they have developed to predict the impact of climate change on growing crops and how this affects emissions. The model can also incorporate the impact of rotating crops or replacing them with other plants such as trees, which don’t generate income but benefit the environment. Savills use this model to set an effective price on carbon emissions for the rural industry, thereby helping to tackle climate change. Norton believes that market failure has led to the current state of play, while government policy is often too short-term.

All the panellists agreed that the biggest problem for the industry is the availability and reliability of sustainability data and the measurement of carbon emissions in the built environment. Tools like the GRESB benchmark don’t fully account for all aspects of emissions and need to improve to truly reflect a building’s ‘greenness’. More data is also needed linking climate change and property values and performance – something that is already being investigated by various companies. This should help compare buildings globally and determine future pricing based on climate change and sustainability criteria.

Maria Grubmueller / Tim Horsey