A newly released report from Global Property Index producer, MSCI, draws on geospatial and climate hazard data to identify where and how real estate assets could be vulnerable to extreme weather events and patterns. The work underscores the widening scope of resources that can be tapped to build increasingly sophisticated property profiles, as well as the challenges of that task.
“Data is fragmented. It’s difficult to obtain. It’s hard to patch together across portfolios,” Darryl Neate, director of sustainability for Oxford Properties Group, told a gathering earlier this fall at the release of 2019 results of the GRESB global benchmark for environmental, social and governance (ESG) performance of commercial real estate portfolios.
MSCI’s effort began with geocoding to pinpoint the exact global coordinates of 23,771 properties located in Australia, South Africa, the United States, United Kingdom and the Netherlands. This was cross-referenced with various national and regional level geomatic, scientific and planning data to derive a picture of physical risks and mitigating factors in play at each address.
Three separate analyses were performed in line with generally recognized climate-related concerns in the scrutinized regions: drought in Australia and South Africa; hurricanes in the U.S.; and flooding in the U.K. and the Netherlands.
“Climate risks vary widely across real estate markets, making it critical to define exposure by country and to focus on the hazards that are specific to each region,” advise the MSCI researchers, Gillian Mollod and Will Robson. “A market’s desirability may be affected both by its specific vulnerabilities and the climate-resilient strategies that aim to mitigate risk.”
Climate risk profilers analyzed addresses in drought-prone zones using data from the World Resources Institute that captures seasonal and year-to-year variability in the water supply and the longer-term plenitude or diminution of groundwater resources, known as baseline water stress (BWS). Collectively, these indicators provide a reading of the flow-through potential for water shortages, higher water costs and resulting implications for building operations and marketability.
Data to help plot vulnerability to hurricanes in areas exposed to the U.S. Atlantic and Gulf coasts came from two sources: Munich Reinsurance Co.’s mapping of tropical storm intensity zones; and the U.S. National Oceanic and Atmospheric Administration’s (NOAA) SLOSH model for projecting the height of storm surges. The MSCI report also points to the dilemma of flawed data as extreme storms occur with more frequency.
“The insurance market has relied heavily on Federal Emergency Management Agency (FEMA) 100-year floodplain maps, which designate as Special Flood Hazard Areas those with a 1 per cent risk of flooding each year. Yet, as was made clear during Hurricane Harvey — after which almost three-quarters of the damaged homes were outside of the Special Flood Hazard Area, leaving thousands of residents and commercial land owners uninsured — these maps are now outdated,” Mollod and Robson recount.
The SLOSH (sea, lake and overland surges from hurricanes) model considers water depth, land elevation and water flow dynamics when projecting the height of storm surge. Whereas, FEMA’s Special Flood Hazard Areas do not yet account for rising sea level, even though that translates into higher water levels in the path of coastal storms, increasing the threat of damaging and dangerous storm surges.
Flood maps largely uncharted in Canada
For data related to flooding risks, researchers turned to the U.K. Environment Agency’s flood risk mapping and the national risk map in the Netherlands, known as risicokaart. Both countries provide easily accessible resources to the general public.
In the U.K., for example, petitioners can request a “flooding history” of any property, which is promised within working 20 days and at no cost if it requires fewer than 18 hours to compile. Anyone can find immediate online information about a property’s probability of flooding simply by entering address information. In the Netherlands, the online risicokaart demarcates areas where flooding could occur and includes projections of how high the water could rise.
In contrast, Canada’s efforts are still in early stages. A Federal Flood Mapping Framework was published last year, under the auspices of Public Safety Canada, as part of a series of documents produced in consultation with provincial governments and stakeholders.
“These are a series of evergreen guidelines that will help advance flood mapping activities across Canada. The publication of these documents will contribute to better addressing overland flooding — Canada’s costliest hazard — by strengthening flood mapping across the country,” the website states.
Knowledgeable observers note much of the existing information is in piecemeal documents from local planning and conservation bodies, and difficult for untrained users to grasp. In a 2018 policy brief for the Centre for International Governance Innovation, University of Waterloo associate professors Daniel Henstra and Jason Thistlethwaite highlight the differences between the flood hazard maps developed for land use planning purposes and flood risk maps like those available in the U.K. and the Netherlands.
“Flood hazard maps typically contain highly technical data, lack information on potential adverse consequences associated with flooding and fail to distinguish between different flood sources. These characteristics limit their utility for strengthening public understanding of flood risk,” Henstra and Thistlethwaite maintain. “Flood risk maps, by contrast, include information about assets at risk and potential adverse consequences associated with floods, typically denoted in terms of households affected, the likely impact on economic activity and so on. They are intended to support policy dialogue, promote public risk awareness and inform decisions about strategic interventions to mitigate flood risk.”
Factoring capacity to respond
Sustainability practitioners contributing to discussion at the Canadian GRESB results presentation concurred that a data-supported picture of climate risk is an imperative first step to inform other decisions about investing in preparedness or selling off assets.
“We know physical risk is a key risk to our real assets,” affirmed Derek Billsman, director of real estate management and sustainability with the Healthcare of Ontario Pension Plan (HOOPP). “You can’t move that building.”
He described the two-part evaluation derived from a recently completed profile of HOOPP’s portfolio of commercial, industrial and multifamily assets. Each property now carries a score denoting the risk of its physical location — i.e. potential for inescapable extreme weather — and a score for capacity to respond.
MSCI researchers similarly accounted for mitigating factors such as levees in U.S. coastal zones, the Thames River barrier that provides flood defence in London, the Netherlands’ Room for the Rivers resilience strategy, and other local or regional codes and standards. They also considered how the intensity and repercussions of climate-related stresses can vary for different property types. For example, water shortages are likely to be felt more severely in multifamily buildings.
Steady advancements in data analytics make it more feasible to cross-reference all the details, but it can involve collecting and coordinating insight from various disparate sources. Billsman reiterated the challenges of the task when, as in HOOPP’s case, assets are scattered across many jurisdictions in multiple countries. “I am not going to say it’s easy and I’m also not going to say it’s cheap,” he reported.
Those logistical and cost hurdles are expected to dissipate. “All of these data systems are going to get better and better and better,” predicted Regan Smith, director of sustainability with Manulife Investment Management. Nevertheless, MSCI researchers are mindful that openness to the data is an equal part of the equation.
“Real estate investors acknowledge that physical climate risk by itself is not enough to dissuade them from entering into an otherwise attractive real estate market,” Mollod and Robson observe. “However, this risk-reward calculation may evolve if the economic impact of a changing climate manifests itself.”
