The Climate Economics Chair is launching a new partnership with Square Research and the Banque Postale to study stranded assets in the real estate sector.
Project description:
The acceleration of climate change has increased both public and private actors’ awareness regarding its consequences on the economy. While the physical risks threatening real estate assets, such as subsidence or floods, become increasingly salient, the mitigation policies implemented by States also introduce transition risks, such as compulsory levels of energy performance. As most of the European real estate assets that will be in place in the next 50 years are already built, there is a sizable uncertainty on the prospective evolution of their value. Many buildings are indeed unfit either to higher temperatures, to the intensification of extreme weather events, or to more stringent regulations. These factors will make these buildings at best considerably more expensive to occupy, and at worst completely unusable, representing as many potential stranded assets. The stakes are high for all actors of the economy involved in the real estate market, either directly through properties ownership, or indirectly through their financing or insuring.
Our research proposal aims at establishing a precise taxonomy of the climate risks, both physical and transition ones, looming European real estate, and at estimating their prospective effects on real estate value through different and complementary approaches. Our methodology will be helpful to stakeholders in the design of relevant strategies to hedge their real estate assets against various climate risks.