While real estate investment trusts (REITs) can manage the current physical risks of climate change, increased asset exposure to climate hazards will pose greater challenges. In its sector in-depth, REITs Can Manage Climate Risk, Investments Needed to Address Growing Challenges, Moody’s Investors Service leverages Four Twenty Seven’s climate risk data to assess climate risk for 15 rated US REITs.
REITs are most exposed water stress in regions such as California and the Southwest while heat stress puts strains on operating costs in California, the mid-Atlantic and several Northeast locations. For the REITs assessed in the report, hurricane and sea-level rise risk pose less severe threats than they do in some coastal markets. pose modest influence in comparison to heat and water stress for most property locations. Floods pose a modest risk to most assessed REITs.
The analysis found that factors such as the power to pass improvement costs to tenants and local government investment in resilience can mitigate these growing risks. While insurance has traditionally been another risk mitigation technique, these growing changes demand larger capital investments. Asset-level resilience measures can help protect properties from the the impacts of hazards and reduce increased operating costs.
Moody’s subscribers can read the full report here.