From intensifying storms to wildfires and droughts, physical risks from climate change could cost the real estate industry well over $500 billion by 2050, according to a new report co-authored by the sovereign wealth fund of Singapore.
Researchers at the fund, GIC, and S&P Global analyzed the potential impact of climate hazards on more than 50,000 real estate assets held by companies in the S&P Global REIT Index. Those properties could face some $110 billion in excess costs by the end of the decade, without investments in adaptation infrastructure. By 2050, total costs could rise to $559 billion or 28% of the asset value of the index as of July 2024.
And while actual costs of physical risks may not directly translate into valuation loss, “damages can spread across the broader economic system,” the report said.
Natural catastrophes have already caused about $62 billion of insured losses in the first half of 2024, roughly 70% above the 10-year average, according to data from Munich Re.
As industries grapple with the rising costs of climate change, banks including J.P. Morgan Chase & Co. have been hiring specialists to help assess how physical risks could impact real estate and other portfolios.
The GIC and S&P report, which was published last week, finds that almost 90% of the properties in the index will be materially exposed to extreme heat by 2050. That compares with 1% for coastal flooding and 9% for floods caused when urban drainage systems can’t cope with heavy rainfall.
Investing in adaptation measures could bring down the cost of climate risks on properties by $45 billion by 2050, it said.
“The skills required to implement the adaptation measures that address more widespread physical impacts may need to become core to real asset management,” the report said.
