From Climate Risk to Climate Resilience

• JLL estimates that roughly US$580bn (37%) of European commercial real estate sits within the top 10 most vulnerable cities in Europe.
• 94% of respondents to JLL’s UK Investor Survey (July 2024) are actively implementing or considering climate risk mitigation and adaptation within their portfolios.
• Climate risk will affect future demand for buildings – JLL’s Future of Work survey (2024) reveals two in three corporate real estate (CRE) leaders will spend more on climate resilience by 2030 and 45% of CRE leaders will only select buildings that are resilient to climate events.
• Investors and building owners can implement measures now to protect their assets against physical climate risk, including low-cost and nature-based solutions.

In JLL’s Decarbonizing the Built Environment research undertaken in 2021, 78% of investors and 82% of occupiers said climate risk is financial risk; over the past three years, this has evolved from awareness to translating directly into investment strategies and local policies. In Europe, demand for buildings is already affected by transition risk - increased disclosure requirements, reporting frameworks and building performance standards mean that investors need to adhere to a certain level of ESG legislation to attract tenants and remain compliant.

Increasingly, physical climate risk will also begin to impact demand. Certain locations will become more or less desirable not only from a tenant perspective, but from a financial one as well. According to JLL European proprietary data, the impacts of climate risk on real estate deals were twice as prevalent for retail assets as office, and nearly three times more frequent than industrial.

Climate risk alone is not yet impacting go/no-go decisions for most investor types, but it is affecting underwriting, insurance and capital allocation. According to the European Environment Agency (EEA), less than 20% of economic losses from extreme weather and climate-related events in Europe between 1980-2023 were insured. In the UK, some clients have self-insured to protect assets deemed to be in high-risk locations. Insurance premiums or uninsurability of assets is becoming a key consideration for investors.

Plotted against climate modelled hazard scores, JLL estimates that roughly US$580bn (37%) of European commercial real estate sits within the top 10 most vulnerable cities in Europe, including major metropolitans like Paris.

While physical climate risk is not yet affecting location decisions for most European investors, cities such as Amsterdam that can demonstrate they are actively addressing climate hazards remain attractive.

Leading investors are already implementing climate mitigation strategies. Some investors are investing in on-site renewables and battery storage, while others are utilising nature-based solutions to enhance the resiliency of their assets. There are many low-cost/high-impact solutions when it comes to creating more resilient buildings – from as simple as reviewing city plans and future infrastructure projects to inform decision-making, to installing low-use water fittings, efficient lighting and smart meters.

Proactive investors and owners can benefit from taking action now to reduce the worst effects of climate change on their assets. By aligning climate risk mitigation and adaptation strategies with decarbonisation strategies, climate risks can turn into climate resilience.

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