Real Estate Industry Meets Climate Change

Climate Change and Its Impact on the Real Estate Industry

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Three major trends are currently shaping the real estate market in the context of climate change:

1. Carbon Price‍

Currently, only 30% of global CO2 emissions are covered by carbon pricing.

2. Regulatory Pressure

Germany and other European countries must implement the highest environmental standards in the building sector to combat climate change.

3. Revaluation of Buildings

Adhering to energy efficiency standards becomes more profitable; failure to do so will incur higher costs.

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Decarbonization to Combat Real Estate Obsolescence

The imperative to decarbonize buildings is becoming increasingly urgent. Non-compliant buildings risk future devaluation. ESG criteria, particularly environmental considerations, play a decisive role in this context. The building sector is thus shaped by both risks and investment opportunities arising from climate change.

Real Estate Valuation: The Role of CO2 Emissions

Current real estate valuation methodologies do not consistently integrate environmental considerations. This often results in an overestimation of property valuations and returns, while low-carbon assets are undervalued. In response, companies are increasingly adopting innovative strategies, exemplified by the development of the Green IRR, a carbon-adjusted financial metric.

Application of Green IRR in Real Estate Valuation

Green IRR is utilized to assess the risk or benefit of real estate assets concerning CO2 emissions. This key performance indicator assists investors in gaining a clearer understanding of the true costs and advantages associated with carbon-related investments.

Challenges and Impacts of Climate Change

Climate change already has tangible effects on the real estate industry, whether through floods, urban heat islands, or declining groundwater levels. It is not only about reducing CO2 emissions but also about managing the direct consequences of climate change, such as building damage from extreme weather conditions.

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How can PROBIS help?

PROBIS cost management software plays a crucial role by assisting real estate companies in managing effective investments in climate-friendly adaptations and innovations. With its capability to accurately monitor and predict costs, enabling informed decisions on future developments, companies can better plan and respond to maintain the resilience and value stability of their real estate portfolios in a changing world.

Climate change has far-reaching effects on the real estate industry, but also offers opportunities for investment and innovation. With the right tools and approaches, real estate companies can both fulfill their responsibilities and capitalize on the opportunities presented in a climate-altered world.

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