Homes, Commercial Buildings Face Climate Risk in U.S., Europe

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Homes, Commercial Buildings Face Climate Risk in U.S., Europe

Date: 04/03/2024     Category: News & Media     Author: Energy Mix Staff     Publication: The Energy Mix    

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Flooding in California during the “El Niño of the century” in 1998

Climate change is bringing new forms of havoc to real estate markets in the United States and the European Union, with U.S. real estate websites beginning to share climate risk information with buyers and sellers while new EU regulations create a mandate for badly-needed but costly energy retrofits.

In the U.S., the real estate website added heat, wind, and air quality risks to its listings last month, after previously becoming the first major site of its kind to disclose flood risk, Axios reports. That change follows a survey last fall of about 4,600 potential buyers, more than 80% of whom said they consider at least one climate risk when they’re looking for a home.

“A home is often a family’s biggest asset,” the website states. “In that context, it’s important to help homeowners, sellers, buyers, renters, and real estate professionals understand any potential risks so that they may take appropriate action.”

Last year, Axios reported that the “climate change real estate bubble” in the U.S. could exceed US$100 billion, with Florida alone accounting for $50.2 billion.

“It’s vitally important that consumers have this information when they’re making decisions about where to live,” chief economist Danielle Hale told a conference audience last month. During that same event, participants heard that climate change “threatens to make home ownership more expensive,” Axios says.

In the EU, meanwhile, a new Energy Performance of Buildings Directive [pdf] adopted in mid-March requires property owners to “invest vast sums in renovations” to prevent their buildings from exceeding greenhouse gas emission or energy consumption limits, Bloomberg reports.

Investors who hold energy-inefficient buildings face “the task of expending a huge amount of capital to bring that up to scratch, together with refinancing or redeveloping at the highest interest rates we’ve seen in decades,” said Rory Bennett, managing associate at the London, UK-based Linklaters real estate practice. He added that he’s regularly brought in on meetings where “we spend hours talking about what to do.”

The new rule is expected to affect tens of thousands of buildings across the continent, Bloomberg says, with all new structures to be emissions-free by 2030 and one-quarter of the EU’s highest energy-consuming buildings to be renovated by 2033. The measure is meant to increase property owners’ spending on building retrofits by €275 billion per year, at a time when retrofits are only reducing the continent’s energy consumption by about 1% per year.

“The directive is part of a package of first-ever initiatives adopted in recent years to green the EU economy, and includes legal liability for failing to address environmental harms, as well as the mandatory disclosure of energy, emissions, and water use data,” the news agency writes.

Property owners in the United Kingdom are also looking ahead to new planning rules that will mandate building upgrades, at a time when about 70% of the country’s commercial property falls short of a minimum energy performance certificate (EPC) standard. “In a lot of places, you’re going to struggle,” said Jim Gott, manager of the asset surveillance team at the Mount Street advisory firm. “If you don’t hit those EPC targets, it becomes effectively illegal to rent the space. It will affect the capital value of the building.”

At last year’s COP28 climate summit in Dubai, countries agreed to double the pace of annual energy efficiency improvements by 2030. But Bloomberg says the new requirements in the EU are landing badly with real estate investors.

“It’s huge sums of money,” Bennett said. “The reality is there will be some who simply can’t afford or would choose not to comply with the legislation directive on the basis that paying a penalty is, at least in the short term, easier than having to spend a huge amount of your reserves on bringing your stock up to grade.”

The 85% of the EU’s buildings that were built before 2000 have such poor energy performance that they account for the largest single share of the continent’s electricity consumption, Bloomberg writes. But “buildings that are already green are more in demand than ever,” with the proportion of certified buildings in the office stock growing from 15 to 22% between 2019 and 2023.

One recent study found that demand for green properties from the EU’s biggest companies exceeds supply by more than 50%.