Physical Climate Risk Increasingly Shapes Commercial Real Estate Investment, Development and Operations
The NAIOP Research Foundation today released a new report examining how the commercial real estate industry assesses, manages and mitigates physical climate risk amid a sharp rise in weather-related losses. Managing Physical Risk in Commercial Real Estate draws on interviews with corporate occupiers, investors, developers and architects to provide practical insights into how risk is shaping real estate decision-making.
Key Findings:
- Institutional investors, lenders and insurers are increasingly incorporating forward-looking physical risk analytics into underwriting, alongside historical data and engineering-based resilience assessments.
- Corporate occupiers prioritize mitigating operational disruption and weigh insurance costs in higher-risk areas against labor availability, market access and efficiency during site selection.
- Developers most often manage risk by avoiding concentration in high-risk locations or by applying proven engineering and design strategies in new projects.
- A range of mitigation strategies is emerging, from high-cost structural interventions (e.g., elevating buildings to reduce flood risk) to lower-cost operational measures (e.g., maintaining defensible space to limit wildfire exposure).
- Developers are more likely to invest in resilience when driven by tenant requirements, long-term hold strategies or expectations of institutional buyers; otherwise, return on investment remains a key constraint.
- Market forces – including rising insurance premiums, increased lender and investor scrutiny, and evolving building codes – are accelerating the adoption of risk mitigation practices across the industry.
“Physical climate risk is influencing development decisions, operating costs and asset values across markets,” said Marc Selvitelli, CAE, president and CEO of NAIOP. “This report provides timely, practical guidance to help industry stakeholders better understand how risk is being evaluated today and how they can strengthen resilience and performance in an increasingly complex environment.”
The report is authored by Spenser Robinson, DBA, CRE, NAIOP Distinguished Fellow and professor of finance, real estate and entrepreneurship at Central Michigan University; and Siqi Zheng, Ph.D., professor of urban and real estate sustainability at MIT, founder of the MIT Sustainable Urbanization Lab, and faculty director of the MIT Center for Real Estate.
Download the full report: naiop.org/research
