Act now. Climate change is already happening. We must act now to avoid its most detrimental effects and mitigate costly damages. All buildings will be affected, even in temperate climates.

Intensify collaboration. The climate resilience of assets and urban infrastructure is inextricably linked; resilient buildings require resilient cities. Collaboration between governments, owners, developers, occupiers, architects, and insurers is essential.

Be radical. Developing climate resilience will require radical hard engineering, nature-based and AI-powered solutions. 

Climate change is a reality. Extreme climate events – heatwaves, flooding, storms and droughts – are increasing in both severity and occurrence.

No longer confined to the realm of academic discussions or distant headlines, the impacts of climate change are seeping into the very fabric of real estate, demanding attention, adaptation, and action.

Targets to keep global temperatures within the critical 1.5°C threshold in line with the Paris Agreement are almost certain to be missed, and temperature rises are already baked in. Mean global temperatures have risen by 1°C in the past two decades, while 2023 turned into the hottest year on record and 2024 is likely to be even warmer.

Considering these trends, a recent survey of climate scientists by the Intergovernmental Panel on Climate Change (IPCC) found 77% foresee at least 2.5°C of global heating above pre-industrial levels this century if radical action is not taken.

Governments, owners and occupiers must make the built environment resilient to climate change, in tandem with decarbonization efforts.

Imagine a world where all buildings have to comply with strict ESG standards and climate adaptation becomes a necessity.

How could an existing building be retrofitted to be more sustainable and resilient? Our creative team has helped us visualize the opportunities.

In addition to the roof-top garden, electric car charging stations and cycle lanes, behind it are less-obvious changes, such as smart glass; passive design solutions for improved light and ventilation; key infrastructure moved to higher floors; heat pumps; and integrated building technology.

As weather patterns become more unpredictable and extreme weather events become more frequent, the risks to asset values will mount. One estimate has put US$1 trillion of real estate at risk of coastal flooding in the U.S. alone.

Organizations which don’t implement climate mitigation and adaptation strategies face disruption, damages, higher maintenance and insurance costs, coupled with lower revenues:

• More frequent and severe climate events will increase maintenance costs and insurance premiums. Less resilient buildings will become harder to insure, see lower tenant demand and thus fall in value.
• Disruption to operations and property downtime will lead to reduced revenues and increased costs.
• Resources such as energy and water will become more expensive for companies which haven’t adopted measures to reduce consumption.
• Increased regulations around climate risk reporting, such as the SEC legislation in the U.S. and CSRD in Europe will impose compliance mandates for large businesses.

Investors without climate mitigation or adaptation strategies are experiencing reduced liquidity and pricing impacts on asset sales. While this is not a new trend, it is becoming more prevalent as the understanding of the impacts and implications of climate risk increases. For example, in the UK, a prime retail park situated within a flood zone was recently brought to market without a full flood risk assessment (FRA), leading to a reduction in interested parties and likely material impact on pricing.

‘With the current short-term political uncertainty, economic growth opportunities in some markets may now lie in the scientific certainty of climate change adaptation together with emissions reduction.’

- Sonny Masero, Managing Director, Global ESG | Hines

Public investment in resilient infrastructure can mitigate physical climate risk. Some city administrations – such as Amsterdam and Paris – have been pioneers in developing resilience. Other cities, like New York were shocked into action through events like Hurricane Sandy. Likewise, in response to recent wildfires and associated smoke haze, Australia’s state and local governments are leading the charge to protect their urban areas from climate change through a series of planning and associated legislation relating to the built form and vegetation management.

Although some cities are feeling the effects more acutely than others, all will face long-term challenges to existing buildings, infrastructure, and supply chains. For example, while European cities rank among the world’s lowest climate hazard scores, temperatures across the continent are increasing at a rate that is about twice as fast as the global average.

Extreme climate events are already affecting asset pricing and liquidity. Prices typically decline after climate events, particularly in locations not used to extreme weather. Overtime, repeated events can lead to significant price discounts and a drop in demand. In Hong Kong, for example, following a typhoon in October 2018, a multifamily residential building saw unit prices fall by 14% and not recover to pre-typhoon levels still four years later.

Even today’s prime buildings will need to adapt to a rapidly changing climate to maintain their appeal. More than 90% of the world’s largest companies will have at least one real estate asset financially exposed to climate risks by the 2050s, according to S&P Global.

• Only one in five companies has a plan in place to adapt to the physical risks of climate change, according to the latest data from S&P Global. Real estate performs slightly better, with 26.5% adapting for physical risk.
• According to the World Economic Forum’s Global Risks Report 2023 ‘the failure of climate change adaptation ranks as the second-greatest risk for companies over the next decade’.
• While JLL's Decarbonizing the Built Environment report found 78% of investors and 83% of occupiers identify climate risk as a financial risk, a 2023 study from PwC found only 23% of executives are planning for disruptions in the next 12 to 18 months.

Companies often cite cost and lack of data as barriers to climate risk strategies. Additionally, absence of adequate policies, lack of standardization and limited education are barriers to the creation and implementation of climate risk mitigation and adaptation strategies. Collaboration involving government at all levels, asset owners, lenders, insurers and credit rating agencies is vital in driving investment into resilience.