Climate risk in cities: how does it impact real estate value?
After witnessing the effects of climate change in Spain, particularly in Valencia’s economy and infrastructure, we’re faced with the reality of how quickly these changes are evolving and to what extent we should be concerned about climate risk in cities.
As the planet warms and extreme weather events become more frequent, cities find themselves on the front lines of this transformation. Places once considered safe now face new threats that must be addressed: rising sea levels, extreme temperatures, and unpredictable weather patterns that impact both residents and urban infrastructure.
The Climate Risk: Global Cities Outlook report by Cushman & Wakefield highlights how climate risk is already tangibly affecting many global cities and notes that these challenges will only intensify. This risk influences daily life, from the safety of our homes to access to basic services like energy and transportation. As a result, beyond profitability, prices, and tourist appeal, addressing the safety and risks of specific urban areas will now also become the responsibility of real estate investors.
What Is climate risk and how does it affect cities?
Climate risk encompasses the effects of phenomena like floods, heatwaves, wildfires, and rising sea levels. These events have intensified with the acceleration of climate change and rising global temperatures, which not only damage infrastructure such as roads, buildings, and supply networks but also directly impact the health and safety of millions of people living in urban areas.
According to Cushman & Wakefield’s report, cities in coastal regions or densely populated areas, such as Miami, Shanghai, or Tokyo, are particularly vulnerable to these risks. Without strategies to adapt and protect themselves, the impact of these extreme events could be devastating, from human loss to significant financial costs, fundamentally altering urban life and jeopardizing cities’ ability to remain habitable and self-sustainable.
Meanwhile, the London Stock Exchange Group reports that by 2050, half of the world’s largest cities will be at risk of experiencing one or more climate conflicts. The report also predicts that global warming will reach between 2.6°C and 2.8°C by the end of the century, with major cities in the Middle East and Southeast Asia bearing the brunt of the crisis. Specifically, Singapore, Surabaya, Dubai, Riyadh, Jeddah, and Jakarta are expected to face extreme heatwaves.
In Europe, analysts emphasize the increasingly precarious position of cities such as Amsterdam, which faces a high risk of sea-level rise and flooding, and Madrid, which could experience up to 41 days of heatwaves by 2050. Additionally, water stress in the Spanish capital is expected to increase by 65%, becoming a high-risk factor by 2050. Meanwhile, London and Manchester in the UK are also in the spotlight, with a predicted 22% increase in water scarcity and a rise in extreme heat.
How climate risk affects the real estate market
The real estate sector faces unique challenges in the context of climate change. In areas exposed to high risk, such as Miami’s coastline or European urban centers, climate risk is driving up insurance costs and influencing investment decisions. Some urban areas are implementing measures to control how spaces are built and managed, with new infrastructures being developed to protect against future changes. Prague, for instance, has taken measures to prevent flooding by installing containment dikes along the Vltava River, following the heavy rainfall in Valencia.
In recent months, there has been a noticeable increase in demand for efficient and sustainable buildings. Cities with high levels of vulnerability must accelerate policies promoting the construction of energy-efficient buildings, while the market is witnessing a shift as investors favor projects that offer greater resilience against climate change impacts. However, this raises the challenge of ensuring that adaptation measures remain affordable and equitable for everyone, avoiding disparities in access to safe housing.
Conclusion
Climate risk in cities is not just a concern for the future but a present-day challenge that affects both residents and the real estate market. While cities around the world are beginning—albeit in some cases late—to respond to the crisis with new infrastructure policies designed to withstand future events, much work remains to ensure that urban areas remain safe, sustainable, and viable for economic development. Adapting to climate change requires a collective commitment involving governments, businesses, and citizens alike.