Climate Change and Commercial Real Estate: Evidence from Hurricane Sandy

Addoum, J. M., Eichholtz, P., Steiner, E., Yönder, E. (2024) | Asset Management, Risk Mitigation, Valuation

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This study explores how investors reassessed flood risk in commercial real estate following Hurricane Sandy. The study found that properties in New York exposed to flood hazards began trading at significant and long-lasting discounts. It is interesting to note that even in Boston, where the direct damage was minimal, commercial real estate experienced persistent price penalties, indicating a more widespread market response.

The research indicates that these price reductions were not attributable to changes in occupancy rates, but rather to adjustments in asset-level capitalization rates. A placebo analysis using data from Chicago helps to rule out the possibility that the trend was simply part of a broader waterfront pricing pattern, lending credibility to the conclusions.

Most importantly, the findings suggest that Hurricane Sandy sparked a lasting shift in investor attitudes. In light of the recent developments, flood risk seems…