Climate Change Physical Risks in Real Estate: Why Long-Term Planning Matters

The real estate sector is facing growing challenges of climate change, from increasing physical damage to properties to threatening long-term financial losses. As rising temperatures continue to affect the magnitude of climate disasters on property prices and structures, and the uncertainties of future impacts, you may still be relying on historical climate data to anticipate future risks to your investment, or using suboptimal adaptation strategies to assure long-term return.

It is time to rethink it.

In this article, we explore how climate change physical risks impact real estate, with a closer look at long-term strategies to manage real estate climate risk more effectively.

While these are determined by certain factors - like natural landscape, geographic location of physical assets, and frequency and severity of climate events -, the biggest physical climate risks in real estate could be characterised by their magnitude of damage to both your physical buildings and the financial system that supports them.

For example, a single climate disaster may not only damage your home, but may also impact your ability to get a mortgage loan in the future or your capacity to pay off ongoing debts, and/or your ability to make an insurance claim and access insurance premiums in the future.

This was the case in Los Angeles early this year, where a wildfire spread over 41,000 acres due to severe winds and destroyed over 12,300 buildings.

This event, according to Goldman Sachs, could have caused a loss of about $30 billion and led many insurers to exit the region, leaving over 10% of homes without insurance.

Each of these examples illustrates the growing threat of climate change physical risks to real estate on asset value and insurability.

In the US, some of the biggest physical climate risks in real estate include:

• Flooding - At least $100 million of property damages (2024).
• Hurricanes - Hurricanes Helene and Milton costing over $50 billion in insured losses (2024).
• Heatwaves and Urban Heat Islands - Price of heatwave-prone properties increased 8% on average from June to September, due to cooling system costs (2024).
• Wildfires - Over 1,600 home insurance policies dropped by State Farm in Pacific Palisades (2025).

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Climate X CEO and Co-founder Lukky Ahmed recently claimed, "we can no longer rely on historical data", underscoring the limited relevance of outdated information in forward-looking assessment of potential physical climate risks.

He explains that existing climate models often predict rainfall amounts, but they lack the ability to show the resulting ground-level impacts like flooding.

Conversely, Climate X models bridge this gap by simulating water flow and its consequences. He adds that property developers are utilising our platform to assess risk by inputting location and building information, receiving detailed hazard ratings in return.

This is also a reminder that climate risks are evolving rapidly in terms of frequency and severity, which implies that you should consider sophisticated technologies that provide real-time and accurate climate data on potential physical risk to your investments.

This marks a major evolution in assessing climate change physical risks in real estate.

Some key limits of leveraging historical climate data to identify potential physical climate risks in real estate include:

• Inability to account for rapidly changing climate conditions - Historical data may not reflect real-time or future climate conditions with precision.
• Lack of granularity and localised insights - Outdated data could miss relevant and detailed information on specific locations or assets.
• Failure to consider compound and cascading risks - Historical data may not account for the potential interactions between different climate-related risks.
• Insufficient information on emerging risks - These data may not provide insights into new and emerging climate-related risks.

A short-term focus on climate risk assessment can be detrimental to real estate investments, as it may overlook the potential long-term consequences of climate risks.

On the other hand, considering long-term climate risk forecasting can help you navigate more granularly specific climate risk landscape and address potential financial losses.

As risks such as flooding are expected to escalate in the coming years, it becomes crucial to gather as much forward-looking and precise information as possible about a property's flood's risk to make informed decisions.

Ultimately, long-term climate risk forecasting in real estate helps investors move beyond reactive decisions and plan strategically for the decades ahead.

Some benefits of a long-term focus on climate risk assessment include:

• Improved risk management - a long-term focus enables you to identify and manage potential risks more effectively.
• Enhanced investment decision-making - By considering long-term climate risk assessment, you can cover a wider scope of potential risks and make better informed decisions about your investments.
• Increased resilience - You can develop strategies to adapt and respond adequately to climate risks, and in turn increase the resilience of your investments.

With the physical impacts of climate change increasing in frequency and severity, prioritising real estate resilience planning becomes essential to ensure profitable investments.

As property developers and investors, incorporating climate resilience into property development and investment strategies can reduce the risks associated with climate-related events and protect your investments.

Here are ways you can build resilience in real estate and how they can benefit you:

• Conducting climate risk assessments: Evaluate your properties' exposure to climate-related risks. In your due diligence process, assisted by a climate risk expert, assess which type of risks your investments are facing. Doing so can help you develop targeted strategies to reduce potential losses.
• Incorporating resilient design principles: Designing properties with resilience in mind is essential because it can help reduce the risk of damage from climate-related events. Using resilient materials and systems is one way to minimise repair costs, downtime, and potential financial losses.
• Investing in adaptive reuse and retrofitting: Adapting existing properties to climate risks is crucial, as it can help extend the lifespan of your investments as well. Retrofitting properties with climate-resilient features can protect you from damage risks, improving safety and maintaining property values.
• Developing emergency preparedness and response plans: Establishing emergency plans is essential because it ensures you are prepared to respond quickly and effectively in the event of a climate catastrophe. This way, you can minimise damage, protect occupants, and reduce downtime.
• Monitoring and updating your resilience plans: Regularly reviewing and updating your resilience plans is necessary to face evolving climate risks. Staying informed about changing climate conditions and updating your plans accordingly can ensure your investments remain resilient and protected. These actions are essential parts of any real estate resilience planning strategy. Incorporating these principles helps you create more resilient real estate that withstands future risks.

Like every other sector, real estate is significantly subject to increasing climate-related financial risks. Ignoring the rising danger of climate change can definitely put your investments more at risks and can have far-reaching repercussions on your ability to bounce back.

For example, US government-backed mortgages (mainly through Fannie Mae and Freddie Mac, guaranteeing 70% for single-family units) and insurance pricing encourage development in flood-prone and high-risk areas.

In fact, this can lead to a vicious cycle of rising disaster losses, increased debt, and reduced coverage, leaving households greatly exposed to climate disasters.

In addition to mortgage and insurance-linked dangers, here are some additional examples of risks you could face:

• Damage to properties and infrastructure: Climate disasters can cause significant damage to properties and infrastructure, resulting in costly repairs and maintenance.
• Loss of revenue and income: Climate-related events can impact property values, rental income, and occupant rates. Ultimately, they can affect the financial performance of your real estate investments.
• Increased operating costs: Climate disasters can result in increased operating costs, such as higher energy bills or water consumption.
• Stranded assets and obsolescence, which in turn impact the long-term viability of your real estate investments: Tools like Climate X’s Spectra help identify high-risk assets before they become stranded.

As an investor, you may not be immune to the climate risks and the need to adapt and promote resilience in your investment strategies.

In fact, the current market tendency shows that property investors are seeking effective climate adaptation strategies to safeguard their investments and ensure long-term returns.

These strategies are critical for adapting to future climate risk in real estate, where weather volatility and regulation are becoming impossible to ignore.

To adapt to emerging real estate climate risk, consider the following strategies:

• Integrating climate risk assessment into investment decision-making: Again, this is essential to incorporate in your decision-making processes to identify potential risks and opportunities.
• Diversifying portfolios to manage rising climate risks: You can diversify your portfolios across different asset classes, geographic regions, and sectors to manage climate risk and reduce exposure to climate-related events.
• Investing in climate-resilient infrastructure and technologies: You should upgrade your knowledge of and invest in climate-resilient infrastructure (like green or blue roofs, cooling systems, or sea walls) and technologies (such as Climate X's Adapt). These are increasingly used to limit climate-related risks identified across business units and improve resilience.

Considering the significant and long-term challenges that physical climate risks pose to real estate investments, property investors and developers should adopt a proactive and forward-looking approach.

Understanding these challenges posed by climate change and implementing effective and long-term strategies to manage climate-related risks can help you future-proof your portfolios and ensure durable returns.

While there is no single solution to address the impacts of these risks, it is essential that you remain well informed, adapt to emerging risks, and give priority to resilience planning to ensure your investments are adequately protected for a long term.

If you want a deep dive into how climate risk affects asset valuation, and how to identify, assess and manage the financial risks associated with climate change, download our whitepaper below.