Climate Risks in Real Estate: Implications for Investment and Financing Strategies

Given the significance of climate risks for the real estate asset class, and by extension, for financial stability, this thesis explores their implications for property investment and financing strategies in greater depth. A deeper understanding of these risks is crucial for accurately assessing potential repricing effects across sectors and for informing the decisions of policymakers and financial regulators. It is also essential for ensuring the efficient reallocation of capital needed to support the decarbonization of the built environment. This dissertation is organized into four articles, each addressing one or more of the three principal risk channels affecting real estate markets. Together, these articles take a comprehensive view, spanning both equity and debt markets, listed and unlisted sectors, and direct as well as indirect property investments. Article One investigates how spatial urban heat island (UHI) effects influence residential real estate prices, showing how physical climate risks contribute to the total costs of climate change beyond direct material damage. Article Two examines the impact of rooftop solar potential on the financial performance of real estate investment trusts (REITs), highlighting both an additional revenue source and a tool for managing transition risks. Article Three analyzes how disclosure practices, framed by the Sustainable Finance Disclosure Regulation (SFDR), affect the returns of non-listed real estate vehicles. It also assesses how the regulation’s structure and objectives function within the real estate sector. Article Four quantifies how banks factor transition and liability risks into loan pricing and explores how lenders are scaling their investments to mobilize the capital required for the sector’s decarbonization. The dissertation concludes with a summary of key findings and their implications for industry, policy, and academia.