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opportunity for real estate</div></h1></div><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-10 mck-u-animation-blur-in-800 ArticleDefault_mck-c-article-default__description__sjoe9"><div><time datetime="2022-02-04T00:00:00Z">February 4, 2022</time> | Article</div></div></div></div></div></div></div><div class="mck-o-container"><div class="mck-o-container--wrapped mck-o-container--mobile-spacing mdc-u-grid mdc-u-grid-gutter-xxl"><section data-layer-region="article-body-header" class="mdc-u-grid mdc-u-grid-col-md-12 mck-u-animation-blur-in-400 byline-share-container"><div class="mdc-u-grid-col-md-start-2 mdc-u-grid-col-md-end-8 mdc-u-grid-col-lg-start-3 mdc-u-grid-col-lg-end-8 mdc-u-ts-9"><span> </span><span class="AuthorsByLine_mck-c-authors-byline__author__XdrlD"><span class="AuthorsByLine_mck-c-authors-byline__no-wrap__Ced0j"><a data-component="mdc-c-link" href="/our-people/brodie-boland" class="mdc-c-link-inline___7DRrt_2734c4f mdc-c-link-inline--secondary___YKoOK_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">Brodie Boland</span></a> </span></span><span class="AuthorsByLine_mck-c-authors-byline__author__XdrlD"><span class="AuthorsByLine_mck-c-authors-byline__no-wrap__Ced0j"><a data-component="mdc-c-link" href="/our-people/cindy-levy" class="mdc-c-link-inline___7DRrt_2734c4f mdc-c-link-inline--secondary___YKoOK_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">Cindy Levy</span></a> </span></span><span class="AuthorsByLine_mck-c-authors-byline__author__XdrlD"><span class="AuthorsByLine_mck-c-authors-byline__no-wrap__Ced0j"><a data-component="mdc-c-link" href="/our-people/robert-palter" class="mdc-c-link-inline___7DRrt_2734c4f mdc-c-link-inline--secondary___YKoOK_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">Rob Palter</span></a><span> </span></span></span><span class="AuthorsByLine_mck-c-authors-byline__author__XdrlD"><span class="AuthorsByLine_mck-c-authors-byline__no-wrap__Ced0j"><a data-component="mdc-c-link" href="/our-people/daniel-stephens" class="mdc-c-link-inline___7DRrt_2734c4f mdc-c-link-inline--secondary___YKoOK_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">Daniel Stephens</span></a></span></span></div><div class="mdc-u-grid-col-md-start-8 mdc-u-grid-col-md-end-12 mdc-u-grid-col-lg-start-8 mdc-u-grid-col-lg-end-11 ArticleContent_mck-c-article-content__share-tools__kWRRw"></div></section><section class="mdc-u-grid mdc-u-grid-col-md-12 mck-u-animation-blur-in-400"><div class="mdc-u-grid-col-md-start-2 mdc-u-grid-col-md-end-12 mdc-u-grid-col-lg-start-3 mdc-u-grid-col-lg-end-11"><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-5"><div class="mck-u-links-inline">Real-estate leaders should revalue assets, decarbonize, and create new business opportunities. Here’s how.</div></div></div></section><main data-layer-region="article-body" class="mdc-u-grid mdc-u-grid-gutter-xxl"><div class="mdc-u-grid mdc-u-grid-col-1 mdc-u-grid-col-md-12"><div class="mdc-u-grid-col-md-start-2 mdc-u-grid-col-md-end-12 mdc-u-grid-col-lg-start-3 mdc-u-grid-col-lg-end-11"><div class="mdc-o-content-body mck-u-dropcap"> <div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="lightest-grey" data-module-category="StandalonePromo" data-module-gradient-position="top-right" class="mck-c-module-wrapper mck-o-edge-to-edge" data-module-name="one-up-medium"><div class="mck-o-container"><div class="UpModule_mck-c-up__irSw8 mck-o-container--wrapped mck-o-container--mobile-spacing"><div class="UpModule_mck-c-up__header__OR_Vx"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-c-heading--title___5qyOB_2734c4f mdc-c-heading--border___K8dj3_2734c4f UpModule_mdc-c-heading--title__4XbMT"><div>Get the latest</div></h2><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f UpModule_mck-c-up__header-dek-container__2p51y"><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-7 mck-u-links-inline mdc-u-align-left mck-c-up__dek"><div class="mdc-o-content-body"><p>September 5, 2024</p> <p><em>In the time since we first published this article, McKinsey has continued to explore the topic. Read on for a summary of our latest insights.</em></p> <p>The <a href="/industries/real-estate/our-insights/a-new-way-to-decarbonize-buildings-can-lower-emissions-profitably">real estate industry accounts for approximately 40 percent</a> of global combustion-related emissions, 28 percentage points of which come from building operations. That means most of the emissions from the world’s real estate industry come from running buildings as opposed to building them. Though these are daunting figures, there is good news. First, it’s possible to decarbonize building operations profitably—and the ways to do it already exist at scale. Second, making net-zero plans is now faster and easier thanks to today’s latest technologies.</p> <p>Existing options for decarbonizing buildings include <a href="/industries/electric-power-and-natural-gas/our-insights/building-decarbonization-how-electric-heat-pumps-could-help-reduce-emissions-today-and-going-forward">heat pumps</a>; the <a href="/capabilities/sustainability/our-insights/net-zero-electrical-heat-a-turning-point-in-feasibility">electrification of heating</a>, cooling, and cooking elements; improved envelopes and better insulation in buildings; and on-site renewables. Although these sustainable upgrades may require <a href="/industries/engineering-construction-and-building-materials/our-insights/building-value-by-decarbonizing-the-built-environment">upfront investment</a>, they can create significant savings over time.</p> <p>The traditional approach to creating a net-zero game plan for a portfolio—sending an engineer in to file a report on each building—can be slow, laborious, and expensive. Fortunately, solutions such as using artificial intelligence and machine-learning-based approaches are now an option. These tools can pull from a wide range of data sources to quickly formulate net-zero plans, even for portfolios with thousands of buildings. That’s a boon for building owners and operators, many of whom are facing <a href="/industries/real-estate/our-insights/proposed-climate-rule-signals-new-era-for-real-estate">new pressures to decarbonize from regulators</a> and from tenants and investors who have made their own net-zero commitments.</p> <p>Climate change is a serious challenge. But the fact that the world can get closer to net zero by decarbonizing 28 percent of global emissions in financially neutral or positive terms with today’s technology is reason to be hopeful. As real estate owners and operators create net-zero plans for their assets, these actions will create demand signals for heat pump and solar manufacturers, letting them know how much they must produce to effectively scale. The contractor and technician ecosystem can then be made ready for mass deployment. It can all happen now. It’s just a matter of getting started.</p> <p><em>Articles referenced:</em></p> <p>“<a href="/capabilities/sustainability/our-insights/net-zero-electrical-heat-a-turning-point-in-feasibility">Net-zero electrical heat: A turning point in feasibility</a>,” July 2024</p> <p>“<a href="/industries/real-estate/our-insights/a-new-way-to-decarbonize-buildings-can-lower-emissions-profitably">A new way to decarbonize buildings can lower emissions—profitably</a>,” November 2023</p> <p>“<a href="/industries/engineering-construction-and-building-materials/our-insights/building-value-by-decarbonizing-the-built-environment">Building value by decarbonizing the built environment</a>,” June 2023</p> <p>“<a href="/industries/electric-power-and-natural-gas/our-insights/building-decarbonization-how-electric-heat-pumps-could-help-reduce-emissions-today-and-going-forward">Building decarbonization: How electric heat pumps could help reduce emissions today and going forward</a>,” July 2022</p> <p>“<a href="/industries/real-estate/our-insights/proposed-climate-rule-signals-new-era-for-real-estate">Proposed climate rule signals new era for real estate</a>,” June 2022</p></div></div></div></div></div></div></div> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="DownloadsSidebar_mck-c-downloads-sidebar__iFmyt mck-o-xs-right-span"><div data-layer-region="downloads-right-rail"><h3 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-c-heading--title___5qyOB_2734c4f mdc-c-heading--border___K8dj3_2734c4f"></h3><div><div data-component="mdc-c-link-container" class="mdc-c-link-container___xefGu_2734c4f"><a data-component="mdc-c-link" href="#/download/%2F~%2Fmedia%2Fmckinsey%2Findustries%2Freal%20estate%2Four%20insights%2Fclimate%20risk%20and%20the%20opportunity%20for%20real%20estate%2Fclimate-risk-and-the-opportunity-for-real-estate-v3.pdf%3FshouldIndex%3Dfalse" class="DownloadsSidebar_mck-c-downloads-sidebar__download-link__fPqFQ mdc-c-link___lBbY1_2734c4f" target="_self" data-layer-event-prefix="Download Link" data-layer-action="click" data-layer-report-type="" data-layer-file-name="climate-risk-and-the-opportunity-for-real-estate-v3" data-layer-report-name="climate-risk-and-the-opportunity-for-real-estate-v3>"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--size-md___yi5fA_2734c4f mck-download-icon"></span><span class="mdc-c-link__label___Pfqtd_2734c4f"> (8 pages)</span></a></div></div></div></div> <p><strong>Climate change,</strong> previously a relatively peripheral concern for many <a href="/industries/real-estate/our-insights/six-new-imperatives-for-real-estate-players">real-estate players, has moved to the top of the agenda. Recently, investors</a> made net-zero commitments, regulators developed reporting standards, governments passed laws targeting emissions, employees demanded action, and tenants demanded more sustainable buildings. At the same time, the accelerating physical consequences of a changing climate are becoming more pronounced as communities face storms, floods, fires, extreme heat, and other risks.</p>  <p>These changes have brought a sense of urgency to the critical role of real-estate leaders in the climate transition, the period until 2050 during which the world will feel both the physical effects of climate change and the economic, social, and regulatory changes necessary to decarbonize. The climate transition not only creates new responsibilities for real-estate players to both revalue and future-proof their portfolios but also brings opportunities to create fresh sources of value.</p> <p>The combination of this economic transition and the physical risks of climate change has created a significant risk of mispricing real estate across markets and asset classes. For example, a major North American bank conducted analysis that found dozens of assets in its real-estate portfolio that would likely be exposed to significant devaluations within the next ten years due to factors including increased rates of flooding and job losses due to the climate transition. Additionally, a study of a diversified equity portfolio found that, absent mitigating actions, climate risks could reduce annual returns toward the end of the decade by as much as 40 percent.</p> <p>Leading real-estate players will figure out which of their assets are mispriced and in what direction and use this insight to inform their investment, asset management, and disposition choices. They will also decarbonize their assets, attracting the trillions of dollars of capital that has been committed to net zero and the thousands of tenants that have made similar commitments. They will then create new revenue sources related to the climate transition.</p> <p>Building climate intelligence is central to value creation and strategic differentiation in the real-estate industry. But the reverse is also true: real estate is central to global climate change mitigation efforts. Real estate drives approximately 39 percent of total global emissions. Approximately 11 percent of these emissions are generated by manufacturing materials used in buildings (including steel and cement), while the rest is emitted from buildings themselves and by generating the energy that powers buildings.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="bb050ecf-fccb-40d6-b0d9-4712b6b59373"><sup class="FootNote_footnotesup__e73z_">1</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="bb050ecf-fccb-40d6-b0d9-4712b6b59373" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline"><em>2019 global status report for buildings and construction</em>, International Energy Agency, December 2019.</span></span></span></a></span></p> <p>In addition to the scale of its contribution to total emissions, real estate is critical in global decarbonization efforts for reasons likely to be compelling for investors, tenants, and governments. Significant reductions in emissions associated with real estate can be achieved with positive economics through technologies that already exist. For example, upgrading to more energy-efficient lighting systems and installing better insulation have positive financial returns. Today, newer technologies also make low-carbon heating and cooling systems, such as heat pumps and energy-efficient air conditioning, more cost competitive in many markets and climates. These cost-effective upgrades can create meaningful change while also derisking assets.</p> <p>We suggest three actions real-estate players can take to thrive throughout the climate transition:</p> <ul> <li>Incorporate climate change risks into asset and portfolio valuations. This requires building the analytical capabilities to understand both direct and indirect physical and transition risks.</li> <li>Decarbonize real-estate assets and portfolios.</li> <li>Create new sources of value and revenue streams for investors, tenants, and communities.</li> </ul> <p>Fundamental changes brought on by the climate transition will open new dimensions of competitive differentiation and value creation for real-estate players. More important, leaders will make a valuable contribution to the world’s ability to meet the global climate challenge.</p> <h2>Incorporate climate change risks into asset and portfolio valuations</h2> <p>Climate change’s physical and transition risks touch almost every aspect of a building’s operations and value. Physical risks are hazards caused by a changing climate, including both acute events, such as floods, fires, extreme heat, and storms, and chronic conditions, such as steadily rising sea levels and changing average temperatures. Transition risks include changes in the economy, regulation, consumer behavior, technology, and other human responses to climate change.</p> <div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="lightest-grey" data-module-category="" data-module-gradient-position="bottom-right" class="mck-c-inline-module-container SideBar_mck-c-sidebar__bgimg-wrapper__Qj4Dt mck-o-sm-left-span SideBar_mck-c-sidebar__sidebar-wrapper__Dpjw2 SideBar_mck-c-sidebar__sidebar-wrapper--istablet__IQ6ii mck-u-screen-only mck-c-module-wrapper" data-layer-region="sidebar"><div class="SideBar_mck-c-sidebar__epoAm mck-o-md-center"><div class="SideBar_mck-c-sidebar__share-icons-wrapper__9gB_c"><div data-component="mdc-c-link-container" class="mdc-c-link-container___xefGu_2734c4f mdc-c-link-container--display-column___X0HDD_2734c4f SideBar_mck-c-sidebar__share-icons___eQy6"><div data-component="mdc-c-dropdown-menu" class="mdc-c-drop-down"><button data-component="mdc-c-button" aria-label="" type="button" id="button_id" class="mdc-c-button___U4iY2_2734c4f mdc-c-button--ghost mdc-c-button--size-medium mdc-c-drop-down__rootmenu___yJzvz_2734c4f" aria-expanded="false" aria-haspopup="menu"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--default___f-hQM_2734c4f mdc-c-icon--size-md___yi5fA_2734c4f mck-share2-icon"></span></button><div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="white" data-module-category="" class=""></div></div><button data-component="mdc-c-button" aria-label="Expandable Sidebar" type="button" id="button_id" class="mdc-c-button___U4iY2_2734c4f mdc-c-button--ghost mdc-c-button--size-medium SideBar_mck-c-sidebar__toggle-btn__EL8iE" aria-expanded="false" data-layer-event-prefix="UI Item" data-layer-action="click" data-layer-category="sidebar" data-layer-subcategory="open" data-layer-text="open sidebar"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--radial___y3csX_2734c4f mdc-c-icon--size-xxl___cL3ZT_2734c4f mck-plus-no-circle-icon"></span></button></div></div><div class="SideBar_mck-c-sidebar__content-outer__UdWCq"><div class="SideBar_mck-c-sidebar__eyebrow__5GSEq"></div><div class="SideBar_mck-c-sidebar__content__raEwe"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-3 SideBar_mck-c-sidebar__content-heading__NJekY"><div>We do mind the gap</div></h2><div class="SideBar_mck-c-sidebar__content-description__4p9iI mdc-u-ts-7"><div class="mdc-o-content-body"><p><strong>As we work with</strong> real-estate firms, we notice that investment teams increasingly recognize the impact of climate change on asset values. As one leader of valuations at a major real-estate-services firm recently commented to us: “This is the greatest deviation between modeled valuation and actual price that I’ve ever seen, and it’s because of climate.” A chief operating officer of a diversified real-estate investor told us, “We’ve seen underperformance of a cluster of our assets due to climate-related factors that just weren’t considered in our investment theses.”</p> <p>The industry at large senses how values are shifting. A recent survey of finance experts and professionals conducted by researchers at New York University found that those who think real-estate asset prices reflect climate risks “not enough” outnumber those who think they reflect climate risks “too much” by 67 to 1 (in comparison with stock prices, in which the ratio was 20 to 1).<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="0a797d42-bc4a-451c-9e32-e3ca6e8ed7f2"><sup class="FootNote_footnotesup__e73z_">1</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="0a797d42-bc4a-451c-9e32-e3ca6e8ed7f2" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Johannes Stroebel and Jeffrey Wurgler, “What do you think about climate finance?,” Harvard Law School Forum on Corporate Governance, September 3, 2021.</span></span></span></a></span> The International Renewable Energy Agency has estimated that $7.5 trillion worth of real estate could be “stranded”; these are assets that will experience major write-downs in value given climate risks and the economic transition, making real estate one of the hardest-hit sectors.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="14925f7e-b08f-4f2d-92d0-83e17db8242b"><sup class="FootNote_footnotesup__e73z_">2</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="14925f7e-b08f-4f2d-92d0-83e17db8242b" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Jean Eaglesham and Vipal Monga, “Trillions in assets may be left stranded as companies address climate change,” <em>Wall Street Journal</em>, November 20, 2021.</span></span></span></a></span></p></div></div></div></div></div></div> <p>Physical and transition risks can affect assets, such as buildings, directly or indirectly, by having an impact on the markets with which the assets interact. A carbon-intensive building obviously faces regulatory, tenancy, investor, and other risks; over the long term, so does a building that exists in a carbon-intensive ecosystem. For example, a building supplied by a carbon-intensive energy grid or a carbon-intensive transportation system is exposed to the transition risks of those systems as well. All these changes add up to substantial valuation impacts for even diversified portfolios—an increasingly pressing concern for real-estate companies (see sidebar, “We do mind the gap”).</p> <h3>Physical risks, both direct and indirect, have an uneven effect on asset performance</h3> <p>Several major real-estate companies have recently conducted climate stress tests on their portfolios and found a significant impact on portfolio value, with potential losses for some debt portfolios doubling over the next several years. Notably, they found significant variation within the portfolios. Some assets, because of their carbon footprint, location, or tenant composition, would benefit from changes brought on by the climate transition, while others would suffer significant drops in value. The challenge for players is to determine which assets will be affected, in what ways, and how to respond. There is also opportunity for investors who can identify mispriced assets.</p> <p>Direct physical consequences can be conspicuous: the value of homes in Florida exposed to changing climate-related risks are depressed by roughly $5 billion relative to unexposed homes. According to the <em>Journal of Urban Economics</em>, after Hurricane Sandy, housing prices were reduced by up to 8 percent in New York’s flood zones by 2017, reflecting a greater perception of risk by potential buyers.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="ddeb08cd-6fe5-439c-9e94-ed150f74980e"><sup class="FootNote_footnotesup__e73z_">2</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="ddeb08cd-6fe5-439c-9e94-ed150f74980e" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Francesc Ortega and Süleyman Taspinar, “Rising sea levels and sinking property values: Hurricane Sandy and New York’s housing market,” <em>Journal of Urban Economics</em>, July 2018, Volume 106.</span></span></span></a></span> In California, there has been a 61 percent annual jump in nonrenewals of insurance (due to higher prices and refused coverage) in areas of moderate-to-very-high fire risk.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="1b92b2e1-b1af-4d71-bd18-48e4508865c5"><sup class="FootNote_footnotesup__e73z_">3</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="1b92b2e1-b1af-4d71-bd18-48e4508865c5" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Elaine Chen and Katherine Chiglinsky, “Many Californians being left without homeowners insurance due to wildfire risk,” <em>Insurance Journal</em>, December 4, 2020.</span></span></span></a></span></p> <p>The indirect impacts of physical risk on assets can be harder to perceive, causing some real-estate players to underestimate them. For example, in 2020, the <a href="/capabilities/sustainability/our-insights/can-coastal-cities-turn-the-tide-on-rising-flood-risk">McKinsey Global Institute modeled expected changes in flooding due to climate change in Bristol, England</a>. A cluster of major corporate headquarters was not directly affected, but the transportation arteries to and from the area were. The water may never enter the lobby of the building, but neither will the tenants.</p> <h3>The climate transition will affect both individual buildings and entire real-estate markets</h3> <p>The investments required to avoid or derisk the worst physical risks will drive <a href="/capabilities/sustainability/our-insights/six-characteristics-define-the-net-zero-transition">a historic reallocation of capital</a>. This will change the structure of our economy and impact the value of the markets, companies, and companies’ locations. These momentous changes require real-estate players to look ahead for regulatory, economic, and social changes that could impact assets.</p> <p>Among the most direct climate-transition impacts are regulatory requirements to decarbonize buildings, such as New York City’s Local Law 97. In June 2019, the Urban Green Council found that retrofitting all 50,000 buildings covered by the law would create retrofit demand of up to $24.3 billion through 2030.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="936095ea-8f7d-4e4f-a257-386e0c71eda7"><sup class="FootNote_footnotesup__e73z_">4</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="936095ea-8f7d-4e4f-a257-386e0c71eda7" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">Justin Gerdes, “After pandemic, New York’s buildings face daunting decarbonization mandate,” Greentech Media, April 23, 2020.</span></span></span></a></span> Standard property valuation models generally do not account for the capital costs required for a building to decarbonize, and investors and operators are often left with a major capital expense or tax that wasn’t considered in the investment memo.</p> <p>There is also a host of less direct but potentially more significant transition risks that affect whole markets. For example, some carbon-intensive industries are already experiencing rapid declines or fluctuations. In Calgary, for example, the combination of oil price volatility and market-access issues (driven by climate change–related opposition to pipelines) has dramatically depressed revenues from some buildings. Vacancy rates in downtown Calgary reached about 30 percent, a record high, as of January 2021. Investors exposed to the Calgary market have seen their asset values drop precipitously and are left trying to either hold on and hope for a reversal of fortunes or exit the assets and take a significant loss.</p> <h3>Real-estate players should build the capabilities to understand climate-related impacts on asset performance and values</h3> <p>Real-estate owners and investors will need to improve their climate intelligence to understand the potential impact of revenue, operating costs, capital costs, and capitalization rate on assets. This includes developing the analytical capabilities to consistently assess both physical and transition risks. Analyses should encompass both direct effects on assets and indirect effects on the markets, systems, and societies with which assets interact (Exhibit 1).</p> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-c-inline-module-container mck-o-md-center"><div class="mdc-u-grid mdc-u-grid-gutter-lg mdc-u-grid-col-sm-1 mdc-u-grid--align-start mdc-u-mb-3 GenericItem_mck-c-generic-item__sGwKL"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-xs GenericItem_mck-c-generic-item__content__gq1m0"><div class="mck-c-eyebrow mdc-u-ts-10"><span> 1</span></div></div></div><div class="mck-u-inline-module-border-top mck-u-inline-module-border-bottom"><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/industries/real%20estate/our%20insights/climate%20risk%20and%20the%20opportunity%20for%20real%20estate/svgz-rethinkingrealestate-ex1.svgz?cq=50&cpy=Center"/><img alt="Physical and transition risks have direct and indirect implications for revenue, operating and capital costs, and capitalization rate. " src="/~/media/mckinsey/industries/real%20estate/our%20insights/climate%20risk%20and%20the%20opportunity%20for%20real%20estate/svgz-rethinkingrealestate-ex1.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only"></div></div> <h3>Portfolio and asset managers can map, quantify, and forecast climate change’s asset value impact</h3> <p>To understand climate change impact on asset values, landlords and investors can develop the following capabilities to understand and quantify risks and opportunities:</p> <ul> <li><em>Prioritize.</em> Create a detailed assessment of the asset or portfolio to determine which physical and transition risks are most important and which are less important (using criteria such as the probability of a risk occurring or the severity of that risk).</li> <li><em>Map building exposures. </em>Determine which buildings are exposed to risks, either directly (for example, having to pay a carbon tax on building emissions) or indirectly (for example, exposure to reduction in occupancy as tenants’ industries decline because of a carbon tax), and the degree of exposure (for example, how high floodwaters would reach). This could require detailed modeling of physical hazards (for example, projected changes in flood risks as the climate changes) or macro- or microeconomic modeling (for example, projected GDP impacts based on the carbon price impact on a local geography’s energy production mix).</li> <li><em>Quantify portfolio impact.</em> Combine assessments of the economic risks on individual buildings into an impact map that enables visualization of the entire portfolio (Exhibit 2). This requires combining knowledge of the potential risk or opportunity and an understanding of what drives the economics of a building (including drivers of net operating income, tenancy mix, and areas of cost variability).</li> <li><em>Take action.</em> These capabilities cannot be isolated in a research or environmental, social, and governance (ESG) function but should directly inform investment management, lease pricing, capital attraction and investor relations, asset management, tenant attraction, development, and other core businesses. The processes within organizations must shift to ensure that climate-related insights can be a source of real competitive advantage.</li> </ul> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-c-inline-module-container mck-o-md-center"><div class="mdc-u-grid mdc-u-grid-gutter-lg mdc-u-grid-col-sm-1 mdc-u-grid--align-start mdc-u-mb-3 GenericItem_mck-c-generic-item__sGwKL"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-xs GenericItem_mck-c-generic-item__content__gq1m0"><div class="mck-c-eyebrow mdc-u-ts-10"><span> 2</span></div></div></div><div class="mck-u-inline-module-border-top mck-u-inline-module-border-bottom"><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/industries/real%20estate/our%20insights/climate%20risk%20and%20the%20opportunity%20for%20real%20estate/svgz-rethinkingrealestate-ex2-v2.svgz?cq=50&cpy=Center"/><img alt="Real-estate owners and investors can assess the effects of physical risks and climate transition on the equity value of assets in a diversified real-estate portfolio." src="/~/media/mckinsey/industries/real%20estate/our%20insights/climate%20risk%20and%20the%20opportunity%20for%20real%20estate/svgz-rethinkingrealestate-ex2-v2.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only"></div></div> <p>A portfolio revaluation informed by climate change risks can lead to hard choices but will also open the door to acting on decarbonization and exploring new opportunities.</p> <h2>Decarbonize buildings and portfolios</h2> <p>McKinsey research estimates approximately $9.2 trillion in annual investment will be required globally to support <a href="/capabilities/sustainability/our-insights/the-net-zero-transition-what-it-would-cost-what-it-could-bring">the net-zero transition</a>. If the world successfully decarbonizes, the 2050 economy will look fundamentally different from the current economy. If it doesn’t successfully decarbonize, the world will experience mounting physical risks that will strain the foundations of the global economy and society. In either case, the places where people live, work, shop, and play will fundamentally change.</p> <h3>Decarbonizing real estate requires considering a building’s ecosystem</h3> <p>Ultimately, the only way to reduce the risks of climate change is to decarbonize. Real-estate players have a wide array of options for how to proceed, <a href="/industries/engineering-construction-and-building-materials/our-insights/call-for-action-seizing-the-decarbonization-opportunity-in-construction">including low-carbon development and construction</a>; building retrofits to improve energy efficiency; upgrades to heating, cooling, and lighting technology; and technology to manage demand and consumption. But decarbonization is not solely a technical challenge. To develop the most appropriate path, real-estate players need to understand the range of decarbonization options and their financial and strategic costs and benefits.</p> <h3>Decarbonizing real estate</h3> <p>To decarbonize, industry players can take the following steps:</p> <ul> <li><em>Understand the starting point. </em>Quantify baseline emissions of each building. This helps real-estate players prioritize where to start (for example, individual buildings, asset classes, or regions) and determine how far there is to go to reach zero emissions.</li> <li><em>Set targets.</em> Decide which type of decarbonization target to set. There is a range of potential target-setting standards that take different approaches (for example, measuring absolute emissions versus emissions intensity, or setting targets at the sector level versus asset level). Players should develop a “house view” on targets that achieve business, investor, stakeholder, regulatory, and other objectives.</li> <li><em>Identify decarbonization levers. </em>Build an asset- or portfolio-level abatement curve. A <a href="/capabilities/sustainability/our-insights/greenhouse-gas-abatement-cost-curves">marginal abatement cost curve</a> provides a clear view of the potential cost/return on investment of a given emissions-reduction lever along with the impact of that lever on emissions reduction. This approach can be complemented with market and policy scenarios that change the relative costs and benefits of each potential abatement lever.</li> <li><em>Execute. </em>Set up the mechanisms to effectively deploy the decarbonization plan. These may involve making changes to financing and governance, stakeholder engagement (investors, joint-venture partners, operators, and tenants), and a range of operational and risk-management aspects of the business.</li> <li><em>Track and improve. </em>As investors, lenders, and tenants make their own decarbonization commitments, they will need to demonstrate that their real estate is indeed decarbonizing. Thus, much of the value of decarbonizing will come from the ability to demonstrate emissions reduction to potential stakeholders. Building the ability to monitor and progressively reduce emissions on the path to net zero will create an opportunity for players to differentiate.</li> </ul> <h2>Create new sources of value and revenue streams for investors, tenants, and communities</h2> <p>As the economy decarbonizes, real-estate players can use their locations, connections to utility systems, local operational footprints, and climate intelligence to create new revenue streams, improve asset values, or launch entirely new businesses.</p> <p>Opportunities include the following:</p> <ul> <li><em>Local energy generation and storage. </em>Real-estate firms can use their physical presence to generate and store energy. For example, property developers have been outfitting buildings with solar arrays and batteries, helping to stabilize energy grids and reduce the costs associated with clean energy.<span class="FootNote_footnote-holder__tjRqy"><a aria-label="footnote" href="javascript:void(0);" class="FootNote_footnote-wrapper__AIRwL undefined FootNote_inactive__VZfCp" aria-describedby="646b300a-cb3a-4971-a47e-f24780003291"><sup class="FootNote_footnotesup__e73z_">5</sup><span class="FootNote_notch-wrapper__b_5NS"><span class="FootNote_notch__omKtY"></span></span><span class="FootNote_tooltip__QtrbA mdc-u-mt-2"><span class="FootNote_footnote-content__r2OVl"><span id="646b300a-cb3a-4971-a47e-f24780003291" aria-hidden="true" data-module-theme="light" class="FootNote_footnote-text__VjKgO mck-u-links-inline">“5 ways clean tech is making commercial RE more energy efficient,” Jones Lang LaSalle, April 20, 2021.</span></span></span></a></span></li> <li><em>Green buildings to attract more tenants. </em>Developers and property managers can invest in developing green buildings or retrofitting older buildings to make them green to meet the growing appetite for sustainable workplaces and homes.</li> <li><em>Green-building materials. </em>Players can explore the advantages of green steel, tall timber, modular construction, and other emerging technologies and materials that may have additional benefits, such as faster and lower-cost construction.</li> <li><em>Extra services on-site. </em>Firms can introduce new revenue streams, including vehicle charging, green-facilities management, and other on-site services that enable occupants’ sustainable preferences.</li> <li><em>Services for reducing and tracking emissions. </em>Firms can support occupants by tracking emissions and offering solutions to reduce carbon footprints. These services could include smart sensors and tracking energy consumption through heating, cooling, lighting, and space management.</li> <li><em>Differentiated capital attraction. </em>Given the volume of capital that has already been committed to achieving net zero, firms that are able to decarbonize will have an advantage in attracting capital. Real-estate players may, for example, create specific funds for net-zero buildings or investment themes that support community-scale decarbonization.</li> </ul> <hr/> <p>The coming climate transition will create seismic shifts in the real-estate industry, changing tenants’ and investors’ demands, the value of individual assets, and the fundamental approaches to developing and operating real estate. Smart players will get ahead of these changes and build climate intelligence early by understanding the implications for asset values, finding opportunities to decarbonize, and creating opportunity through supporting the transition.</p> <p>Real estate not only will play a critical role in determining whether the world successfully decarbonizes but also will continue to reinvent the way we live, work, and play through these profound physical and economic changes.</p></div><div class="container-placeholder"></div></div></div><div class="mdc-u-grid mdc-u-grid-gutter-xl"><section role="contentinfo" data-layer-region="article-about-authors" class="mdc-u-grid mdc-u-grid-col-xs-12 mck-c-enhanced-author"><div class="mdc-u-grid-col-xs-start-2 mdc-u-grid-col-xs-end-12 mdc-u-grid-col-lg-start-3 mdc-u-grid-col-lg-end-11"><h2 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-c-heading--title___5qyOB_2734c4f mdc-c-heading--border___K8dj3_2734c4f mdc-u-align-center"></h2><div class="mdc-u-grid mdc-u-grid-col-xs-1 mdc-u-grid-col-md-2 mdc-u-grid-gutter-lg mdc-u-mt-5"><div class="mdc-u-grid mdc-u-grid-col-xs-12"><div class="mdc-u-grid-col-xs-span-4"><div data-component="mdc-c-avatar" class="mdc-c-avatar-enhanced-author-0 mdc-c-avatar___kVSTP_2734c4f mdc-c-avatar--image___levct_2734c4f mdc-c-avatar--size-4"><style> .mdc-c-avatar-enhanced-author-0 { --mdc-avatar-size: 96px; } </style><a href="/our-people/brodie-boland"><img src="/~/media/mckinsey/our people/brodie boland/brodie boland_fc-mask_profile_1536x1152.png?cq=50&mw=480&car=1:1&cpy=Center" alt="Brodie Boland"/></a></div></div><div class="mdc-u-grid-col-xs-span-8"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f EnhancedAuthor_mck-c-enhanced-author__content-block__IC8P1"><a data-component="mdc-c-link" href="/our-people/brodie-boland" class="mdc-u-ts-8 mdc-c-link-cta___NBQVi_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">Brodie Boland</span></a><span 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mdc-u-grid-gutter-md"><a data-component="mdc-c-link" href="https://www.linkedin.com/in/levycindy/" class="mdc-c-link___lBbY1_2734c4f mdc-c-link--secondary___TSFam_2734c4f" aria-label="LinkedIn profile for Cindy Levy"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--size-md___yi5fA_2734c4f mck-linkedin-icon"></span><span class="mdc-c-link__label___Pfqtd_2734c4f">LinkedIn</span></a><a data-component="mdc-c-link" href="Cindy_Levy@mckinsey.com" class="mdc-c-link___lBbY1_2734c4f mdc-c-link--secondary___TSFam_2734c4f" aria-label="Email to Cindy Levy"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--default___f-hQM_2734c4f mdc-c-icon--size-md___yi5fA_2734c4f mck-email-icon"></span><span class="mdc-c-link__label___Pfqtd_2734c4f">Email</span></a></div></div></div></div><div class="mdc-u-grid mdc-u-grid-col-xs-12"><div class="mdc-u-grid-col-xs-span-4"><div data-component="mdc-c-avatar" class="mdc-c-avatar-enhanced-author-2 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class="mdc-u-grid mdc-u-grid-col-xs-12"><div class="mdc-u-grid-col-xs-span-4"><div data-component="mdc-c-avatar" class="mdc-c-avatar-enhanced-author-3 mdc-c-avatar___kVSTP_2734c4f mdc-c-avatar--image___levct_2734c4f mdc-c-avatar--size-4"><style> .mdc-c-avatar-enhanced-author-3 { --mdc-avatar-size: 96px; } </style><a href="/our-people/daniel-stephens"><img src="/~/media/mckinsey/our people/daniel stephens/dan stephens_2916-1_fc-mask_profile_1536x1152.png?cq=50&mw=480&car=1:1&cpy=Center" alt=""/></a></div></div><div class="mdc-u-grid-col-xs-span-8"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f EnhancedAuthor_mck-c-enhanced-author__content-block__IC8P1"><a data-component="mdc-c-link" href="/our-people/daniel-stephens" class="mdc-u-ts-8 mdc-c-link-cta___NBQVi_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">Daniel Stephens</span></a><span class="EnhancedAuthor_mck-c-enhanced-author__title-location__Swv8a title-location">Senior Partner, Washington DC</span><div data-component="mdc-c-link-container" class="mdc-c-link-container___xefGu_2734c4f mdc-c-link-container--display-column___X0HDD_2734c4f mdc-u-mt-2 EnhancedAuthor_mck-c-enhanced-author__social-link-container__zAs9x mdc-u-grid-gutter-md"><a data-component="mdc-c-link" href="" class="mdc-c-link___lBbY1_2734c4f mdc-c-link--secondary___TSFam_2734c4f" aria-label="Email to Daniel Stephens"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--default___f-hQM_2734c4f mdc-c-icon--size-md___yi5fA_2734c4f mck-email-icon"></span><span class="mdc-c-link__label___Pfqtd_2734c4f">Email</span></a></div></div></div></div></div><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f mdc-u-ts-8 mdc-u-mt-5"><div><p>This article was edited by Katy McLaughlin, a senior editor in the southern California office.</p></div></div></div></section><section class="mdc-u-grid mdc-u-grid-col-md-12 mck-u-screen-only"><div 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2021: Sustainability in the construction ecosystem</div></a></h6></div></div></div></div></div></div></div></main></div><script id="__NEXT_DATA__" type="application/json">{"props":{"pageProps":{"locale":"en","dictionary":{},"sitecoreContext":{"route":{"name":"Climate risk and the opportunity for real estate","displayName":"Climate risk and the opportunity for real estate","fields":null,"databaseName":"web","deviceId":"fe5d7fdf-89c0-4d99-9aa3-b5fbd009c9f3","itemId":"b8ae47f4-ca2a-4239-8642-ba5e60136df9","itemLanguage":"en","itemVersion":2,"layoutId":"ae753eb4-a035-40b4-83bf-4b4438df6742","templateId":"683910db-02ba-40ba-92e7-726c880160a9","templateName":"ArticleJSS","placeholders":{"jss-main":[{"uid":"232bb7e9-289f-492d-a916-2b6185e44a84","componentName":"ArticleTemplate","dataSource":"","fields":{"data":{"articleTemplate":{"title":{"jsonValue":{"value":"Climate risk and the opportunity for real estate"}},"sEOTitle":{"value":"Real estate strategy in the climate change era"},"description":{"jsonValue":{"value":"Real-estate leaders should revalue assets, decarbonize, and create new business opportunities. Here\u0026rsquo;s how."}},"sEODescription":{"value":"In this article, we look at how companies can leverage an effective real estate strategy that addresses the challenge of climate change and decarbonization."},"displayDate":{"jsonValue":{"value":"2022-02-04T00:00:00Z"}},"body":{"value":"[[Audio 1]] [[OneUpMedium topper]] [[DownloadsSidebar]]\n\u003cp\u003e\u003cstrong\u003eClimate change,\u003c/strong\u003e previously a relatively peripheral concern for many \u003ca href=\"/industries/real-estate/our-insights/six-new-imperatives-for-real-estate-players\"\u003ereal-estate players, has moved to the top of the agenda. Recently, investors\u003c/a\u003e\u0026nbsp;made net-zero commitments, regulators developed reporting standards, governments passed laws targeting emissions, employees demanded action, and tenants demanded more sustainable buildings. At the same time, the accelerating physical consequences of a changing climate are becoming more pronounced as communities face storms, floods, fires, extreme heat, and other risks.\u003c/p\u003e\n[[MostPopularArticles 5]]\n\u003cp\u003eThese changes have brought a sense of urgency to the critical role of real-estate leaders in the climate transition, the period until 2050 during which the world will feel both the physical effects of climate change and the economic, social, and regulatory changes necessary to decarbonize. The climate transition not only creates new responsibilities for real-estate players to both revalue and future-proof their portfolios but also brings opportunities to create fresh sources of value.\u003c/p\u003e\n\u003cp\u003eThe combination of this economic transition and the physical risks of climate change has created a significant risk of mispricing real estate across markets and asset classes. For example, a major North American bank conducted analysis that found dozens of assets in its real-estate portfolio that would likely be exposed to significant devaluations within the next ten years due to factors including increased rates of flooding and job losses due to the climate transition. Additionally, a study of a diversified equity portfolio found that, absent mitigating actions, climate risks could reduce annual returns toward the end of the decade by as much as 40 percent.\u003c/p\u003e\n\u003cp\u003eLeading real-estate players will figure out which of their assets are mispriced and in what direction and use this insight to inform their investment, asset management, and disposition choices. They will also decarbonize their assets, attracting the trillions of dollars of capital that has been committed to net zero and the thousands of tenants that have made similar commitments. They will then create new revenue sources related to the climate transition.\u003c/p\u003e\n\u003cp\u003eBuilding climate intelligence is central to value creation and strategic differentiation in the real-estate industry. But the reverse is also true: real estate is central to global climate change mitigation efforts. Real estate drives approximately 39 percent of total global emissions. Approximately 11 percent of these emissions are generated by manufacturing materials used in buildings (including steel and cement), while the rest is emitted from buildings themselves and by generating the energy that powers buildings.[[Footnote 1]]\u003c/p\u003e\n\u003cp\u003eIn addition to the scale of its contribution to total emissions, real estate is critical in global decarbonization efforts for reasons likely to be compelling for investors, tenants, and governments. Significant reductions in emissions associated with real estate can be achieved with positive economics through technologies that already exist. For example, upgrading to more energy-efficient lighting systems and installing better insulation have positive financial returns. Today, newer technologies also make low-carbon heating and cooling systems, such as heat pumps and energy-efficient air conditioning, more cost competitive in many markets and climates. These cost-effective upgrades can create meaningful change while also derisking assets.\u003c/p\u003e\n\u003cp\u003eWe suggest three actions real-estate players can take to thrive throughout the climate transition:\u003c/p\u003e\n\u003cul\u003e\n \u003cli\u003eIncorporate climate change risks into asset and portfolio valuations. This requires building the analytical capabilities to understand both direct and indirect physical and transition risks.\u003c/li\u003e\n \u003cli\u003eDecarbonize real-estate assets and portfolios.\u003c/li\u003e\n \u003cli\u003eCreate new sources of value and revenue streams for investors, tenants, and communities.\u003c/li\u003e\n\u003c/ul\u003e\n\u003cp\u003eFundamental changes brought on by the climate transition will open new dimensions of competitive differentiation and value creation for real-estate players. More important, leaders will make a valuable contribution to the world\u0026rsquo;s ability to meet the global climate challenge.\u003c/p\u003e\n\u003ch2\u003eIncorporate climate change risks into asset and portfolio valuations\u003c/h2\u003e\n\u003cp\u003eClimate change\u0026rsquo;s physical and transition risks touch almost every aspect of a building\u0026rsquo;s operations and value. Physical risks are hazards caused by a changing climate, including both acute events, such as floods, fires, extreme heat, and storms, and chronic conditions, such as steadily rising sea levels and changing average temperatures. Transition risks include changes in the economy, regulation, consumer behavior, technology, and other human responses to climate change.\u003c/p\u003e\n[[Sidebar 1]]\n\u003cp\u003ePhysical and transition risks can affect assets, such as buildings, directly or indirectly, by having an impact on the markets with which the assets interact. A carbon-intensive building obviously faces regulatory, tenancy, investor, and other risks; over the long term, so does a building that exists in a carbon-intensive ecosystem. For example, a building supplied by a carbon-intensive energy grid or a carbon-intensive transportation system is exposed to the transition risks of those systems as well. All these changes add up to substantial valuation impacts for even diversified portfolios\u0026mdash;an increasingly pressing concern for real-estate companies (see sidebar, \u0026ldquo;We do mind the gap\u0026rdquo;).\u003c/p\u003e\n\u003ch3\u003ePhysical risks, both direct and indirect, have an uneven effect on asset performance\u003c/h3\u003e\n\u003cp\u003eSeveral major real-estate companies have recently conducted climate stress tests on their portfolios and found a significant impact on portfolio value, with potential losses for some debt portfolios doubling over the next several years. Notably, they found significant variation within the portfolios. Some assets, because of their carbon footprint, location, or tenant composition, would benefit from changes brought on by the climate transition, while others would suffer significant drops in value. The challenge for players is to determine which assets will be affected, in what ways, and how to respond. There is also opportunity for investors who can identify mispriced assets.\u003c/p\u003e\n\u003cp\u003eDirect physical consequences can be conspicuous: the value of homes in Florida exposed to changing climate-related risks are depressed by roughly $5\u0026nbsp;billion relative to unexposed homes. According to the \u003cem\u003eJournal of Urban Economics\u003c/em\u003e, after Hurricane Sandy, housing prices were reduced by up to 8 percent in New York\u0026rsquo;s flood zones by 2017, reflecting a greater perception of risk by potential buyers.[[Footnote 2]] In California, there has been a 61 percent annual jump in nonrenewals of insurance (due to higher prices and refused coverage) in areas of moderate-to-very-high fire risk.[[Footnote 3]]\u003c/p\u003e\n\u003cp\u003eThe indirect impacts of physical risk on assets can be harder to perceive, causing some real-estate players to underestimate them. For example, in 2020, the \u003ca href=\"/capabilities/sustainability/our-insights/can-coastal-cities-turn-the-tide-on-rising-flood-risk\"\u003eMcKinsey Global Institute modeled expected changes in flooding due to climate change in Bristol, England\u003c/a\u003e. A cluster of major corporate headquarters was not directly affected, but the transportation arteries to and from the area were. The water may never enter the lobby of the building, but neither will the tenants.\u003c/p\u003e\n\u003ch3\u003eThe climate transition will affect both individual buildings and entire real-estate markets\u003c/h3\u003e\n\u003cp\u003eThe investments required to avoid or derisk the worst physical risks will drive \u003ca href=\"/capabilities/sustainability/our-insights/six-characteristics-define-the-net-zero-transition\"\u003ea historic reallocation of capital\u003c/a\u003e. This will change the structure of our economy and impact the value of the markets, companies, and companies\u0026rsquo; locations. These momentous changes require real-estate players to look ahead for regulatory, economic, and social changes that could impact assets.\u003c/p\u003e\n\u003cp\u003eAmong the most direct climate-transition impacts are regulatory requirements to decarbonize buildings, such as New York City\u0026rsquo;s Local Law 97. In June 2019, the Urban Green Council found that retrofitting all 50,000 buildings covered by the law would create retrofit demand of up to $24.3\u0026nbsp;billion through 2030.[[Footnote 4]] Standard property valuation models generally do not account for the capital costs required for a building to decarbonize, and investors and operators are often left with a major capital expense or tax that wasn\u0026rsquo;t considered in the investment memo.\u003c/p\u003e\n\u003cp\u003eThere is also a host of less direct but potentially more significant transition risks that affect whole markets. For example, some carbon-intensive industries are already experiencing rapid declines or fluctuations. In Calgary, for example, the combination of oil price volatility and market-access issues\u0026nbsp;(driven by climate change\u0026ndash;related opposition to pipelines) has dramatically depressed revenues from some buildings. Vacancy rates in downtown Calgary reached about 30\u0026nbsp;percent, a record high, as of January 2021. Investors exposed to the Calgary market have seen their asset values drop precipitously and are left trying to either hold on and hope for a reversal of fortunes or exit the assets and take a significant loss.\u003c/p\u003e\n\u003ch3\u003eReal-estate players should build the capabilities to understand climate-related impacts on asset performance and values\u003c/h3\u003e\n\u003cp\u003eReal-estate owners and investors will need to improve their climate intelligence to understand the potential impact of revenue, operating costs, capital costs, and capitalization rate on assets. This includes developing the analytical capabilities to consistently assess both physical and transition risks. Analyses should encompass both direct effects on assets and indirect effects on the markets, systems, and societies with which assets interact (Exhibit 1).\u003c/p\u003e\n[[Exhibit 1]]\n\u003ch3\u003ePortfolio and asset managers can map, quantify, and forecast climate change\u0026rsquo;s asset value impact\u003c/h3\u003e\n\u003cp\u003eTo understand climate change impact on asset values, landlords and investors can develop the following capabilities to understand and quantify risks and opportunities:\u003c/p\u003e\n\u003cul\u003e\n \u003cli\u003e\u003cem\u003ePrioritize.\u003c/em\u003e Create a detailed assessment of the asset or portfolio to determine which physical and transition risks are most important and which are less important (using criteria such as the probability of a risk occurring or the severity of that risk).\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eMap building exposures. \u003c/em\u003eDetermine which buildings are exposed to risks, either directly (for example, having to pay a carbon tax on building emissions) or indirectly (for example, exposure to reduction in occupancy as tenants\u0026rsquo; industries decline because of a carbon tax), and the degree of exposure (for example, how high floodwaters would reach). This could require detailed modeling of physical hazards (for example, projected changes in flood risks as the climate changes) or macro- or microeconomic modeling (for example, projected GDP impacts based on the carbon price impact on a local geography\u0026rsquo;s energy production mix).\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eQuantify portfolio impact.\u003c/em\u003e Combine assessments of the economic risks on individual buildings into an impact map that enables visualization of the entire portfolio (Exhibit 2). This requires combining knowledge of the potential risk or opportunity and an understanding of what drives the economics of a building (including drivers of net operating income, tenancy mix, and areas of cost variability).\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eTake action.\u003c/em\u003e These capabilities cannot be isolated in a research or environmental, social, and governance (ESG) function but should directly inform investment management, lease pricing, capital attraction and investor relations, asset management, tenant attraction, development, and other core businesses. The processes within organizations must shift to ensure that climate-related insights can be a source of real competitive advantage.\u003c/li\u003e\n\u003c/ul\u003e\n[[Exhibit 2]]\n\u003cp\u003eA portfolio revaluation informed by climate change risks can lead to hard choices but will also open the door to acting on decarbonization and exploring new opportunities.\u003c/p\u003e\n\u003ch2\u003eDecarbonize buildings and portfolios\u003c/h2\u003e\n\u003cp\u003eMcKinsey research estimates approximately $9.2 trillion in annual investment will be required globally to support \u003ca href=\"/capabilities/sustainability/our-insights/the-net-zero-transition-what-it-would-cost-what-it-could-bring\"\u003ethe net-zero transition\u003c/a\u003e. If the world successfully decarbonizes, the 2050 economy will look fundamentally different from the current economy. If it doesn\u0026rsquo;t successfully decarbonize, the world will experience mounting physical risks that will strain the foundations of the global economy and society. In either case, the places where people live, work, shop, and play will fundamentally change.\u003c/p\u003e\n\u003ch3\u003eDecarbonizing real estate requires considering a building\u0026rsquo;s ecosystem\u003c/h3\u003e\n\u003cp\u003eUltimately, the only way to reduce the risks of climate change is to decarbonize. Real-estate players have a wide array of options for how to proceed, \u003ca href=\"/industries/engineering-construction-and-building-materials/our-insights/call-for-action-seizing-the-decarbonization-opportunity-in-construction\"\u003eincluding low-carbon development and construction\u003c/a\u003e; building retrofits to improve energy efficiency; upgrades to heating, cooling, and lighting technology; and technology to manage demand and consumption. But decarbonization is not solely a technical challenge. To develop the most appropriate path, real-estate players need to understand the range of decarbonization options and their financial and strategic costs and benefits.\u003c/p\u003e\n\u003ch3\u003eDecarbonizing real estate\u003c/h3\u003e\n\u003cp\u003eTo decarbonize, industry players can take the following steps:\u003c/p\u003e\n\u003cul\u003e\n \u003cli\u003e\u003cem\u003eUnderstand the starting point. \u003c/em\u003eQuantify baseline emissions of each building. This helps real-estate players prioritize where to start (for example, individual buildings, asset classes, or regions) and determine how far there is to go to reach zero emissions.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eSet targets.\u003c/em\u003e Decide which type of decarbonization target to set. There is a range of potential target-setting standards that take different approaches (for example, measuring absolute emissions versus emissions intensity, or setting targets at the sector level versus asset level). Players should develop a \u0026ldquo;house view\u0026rdquo; on targets that achieve business, investor, stakeholder, regulatory, and other objectives.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eIdentify decarbonization levers. \u003c/em\u003eBuild an asset- or portfolio-level abatement curve. A \u003ca href=\"/capabilities/sustainability/our-insights/greenhouse-gas-abatement-cost-curves\"\u003emarginal abatement cost curve\u003c/a\u003e\u0026nbsp;provides a clear view of the potential cost/return on investment of a given emissions-reduction lever along with the impact of that lever on emissions reduction. This approach can be complemented with market and policy scenarios that change the relative costs and benefits of each potential abatement lever.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eExecute. \u003c/em\u003eSet up the mechanisms to effectively deploy the decarbonization plan. These may involve making changes to financing and governance, stakeholder engagement (investors, joint-venture partners, operators, and tenants), and a range of operational and risk-management aspects of the business.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eTrack and improve. \u003c/em\u003eAs investors, lenders, and tenants make their own decarbonization commitments, they will need to demonstrate that their real estate is indeed decarbonizing. Thus, much of the value of decarbonizing will come from the ability to demonstrate emissions reduction to potential stakeholders. Building the ability to monitor and progressively reduce emissions on the path to net zero will create an opportunity for players to differentiate.\u003c/li\u003e\n\u003c/ul\u003e\n\u003ch2\u003eCreate new sources of value and revenue streams for investors, tenants, and communities\u003c/h2\u003e\n\u003cp\u003eAs the economy decarbonizes, real-estate players can use their locations, connections to utility systems, local operational footprints, and climate intelligence to create new revenue streams, improve asset values, or launch entirely new businesses.\u003c/p\u003e\n\u003cp\u003eOpportunities include the following:\u003c/p\u003e\n\u003cul\u003e\n \u003cli\u003e\u003cem\u003eLocal energy generation and storage. \u003c/em\u003eReal-estate firms can use their physical presence to generate and store energy. For example, property developers have been outfitting buildings with solar arrays and batteries, helping to stabilize energy grids and reduce the costs associated with clean energy.[[Footnote 5]]\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eGreen buildings to attract more tenants. \u003c/em\u003eDevelopers and property managers can invest in developing green buildings or retrofitting older buildings to make them green to meet the growing appetite for sustainable workplaces and homes.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eGreen-building materials. \u003c/em\u003ePlayers can explore the advantages of green steel, tall timber, modular construction, and other emerging technologies and materials that may have additional benefits, such as faster and lower-cost construction.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eExtra services on-site. \u003c/em\u003eFirms can introduce new revenue streams, including vehicle charging, green-facilities management, and other on-site services that enable occupants\u0026rsquo; sustainable preferences.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eServices for reducing and tracking emissions. \u003c/em\u003eFirms can support occupants by tracking emissions and offering solutions to reduce carbon footprints. These services could include smart sensors and tracking energy consumption through heating, cooling, lighting, and space management.\u003c/li\u003e\n \u003cli\u003e\u003cem\u003eDifferentiated capital attraction. \u003c/em\u003eGiven the volume of capital that has already been committed to achieving net zero, firms that are able to decarbonize will have an advantage in attracting capital. Real-estate players may, for example, create specific funds for net-zero buildings or investment themes that support community-scale decarbonization.\u003c/li\u003e\n\u003c/ul\u003e\n\u003chr /\u003e\n\u003cp\u003eThe coming climate transition will create seismic shifts in the real-estate industry, changing tenants\u0026rsquo; and investors\u0026rsquo; demands, the value of individual assets, and the fundamental approaches to developing and operating real estate. Smart players will get ahead of these changes and build climate intelligence early by understanding the implications for asset values, finding opportunities to decarbonize, and creating opportunity through supporting the transition.\u003c/p\u003e\n\u003cp\u003eReal estate not only will play a critical role in determining whether the world successfully decarbonizes but also will continue to reinvent the way we live, work, and play through these profound physical and economic changes.\u003c/p\u003e"},"isFullScreenInteractive":{"boolValue":false},"hideStickySocialShareBar":{"boolValue":false},"desktopID":{"value":""},"mobileID":{"value":""},"desktopURL":{"value":""},"mobileURL":{"value":""},"desktopPaddingPercentage":{"value":""},"mobilePaddingPercentage":{"value":""},"desktopOverrideHeight":{"value":""},"mobileOverrideHeight":{"value":""},"cerosOembedURL":{"value":""},"cerosRenderMode":{"targetItem":null},"cerosBackgroundColor":{"targetItem":null},"hideByLine":{"boolValue":false},"tableOfContentsTitle":{"value":"TABLE OF CONTENTS"},"accessStatus":{"targetItem":{"key":{"value":"RegisteredUsers"},"value":{"value":"Registered Users"}}},"articleType":{"targetItem":{"displayName":"Article"}},"hasSpecialReport":{"boolValue":false},"contentType":{"targetItem":{"displayName":"Article"}},"sourcePublication":{"targetItem":null},"externalPublication":{"value":""},"mobileReady":{"boolValue":true},"forClientsOnly":{"boolValue":false},"excludeFromClientLink":{"boolValue":false},"originalPublishDate":{"jsonValue":{"value":"2022-02-04T00:00:00Z"}},"footnotes":{"value":"\u003col\u003e\n \u003cli\u003e\u003cem\u003e2019 global status report for buildings and construction\u003c/em\u003e, International Energy Agency, December 2019.\u003c/li\u003e\n \u003cli\u003eFrancesc Ortega and S\u0026uuml;leyman Taspinar, \u0026ldquo;Rising sea levels and sinking property values: Hurricane Sandy and New York\u0026rsquo;s housing market,\u0026rdquo; 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As one leader of valuations at a major real-estate-services firm recently commented to us: \u0026ldquo;This is the greatest deviation between modeled valuation and actual price that I\u0026rsquo;ve ever seen, and it\u0026rsquo;s because of climate.\u0026rdquo; A chief operating officer of a diversified real-estate investor told us, \u0026ldquo;We\u0026rsquo;ve seen underperformance of a cluster of our assets due to climate-related factors that just weren\u0026rsquo;t considered in our investment theses.\u0026rdquo;\u003c/p\u003e\n\u003cp\u003eThe industry at large senses how values are shifting. A recent survey of finance experts and professionals conducted by researchers at New York University found that those who think real-estate asset prices reflect climate risks \u0026ldquo;not enough\u0026rdquo; outnumber those who think they reflect climate risks \u0026ldquo;too much\u0026rdquo; by 67 to 1 (in comparison with stock prices, in which the ratio was 20 to 1).[[Footnote 1]] The International Renewable Energy Agency has estimated that $7.5 trillion worth of real estate could be \u0026ldquo;stranded\u0026rdquo;; these are assets that will experience major write-downs in value given climate risks and the economic transition, making real estate one of the hardest-hit sectors.[[Footnote 2]]\u003c/p\u003e"}},"aboutTheAuthors":{"jsonValue":{"value":""}},"headline":{"jsonValue":{"value":"We do mind the gap"}},"footnotes":{"value":"\u003col\u003e\n \u003cli\u003eJohannes Stroebel and Jeffrey Wurgler, \u0026ldquo;What do you think about climate finance?,\u0026rdquo; Harvard Law School Forum on Corporate Governance, September 3, 2021.\u003c/li\u003e\n \u003cli\u003eJean Eaglesham and Vipal Monga, \u0026ldquo;Trillions in assets may be left stranded as companies address climate change,\u0026rdquo; \u003cem\u003eWall Street Journal\u003c/em\u003e, November 20, 2021.\u003c/li\u003e\n\u003c/ol\u003e"},"showShareTools":{"boolValue":true},"backgroundColor":{"targetItem":{"key":{"value":"Lightest Grey"},"value":{"value":"lightest-grey"}}},"gradientDirection":{"targetItem":{"key":{"value":"Bottom Right"},"value":{"value":"bottom-right"}}},"renderMode":{"targetItem":{"key":{"value":"Collapsible"},"value":{"value":"default"}}},"isAboutAuthor":{"boolValue":false},"background":{"targetItem":null},"image":{"src":null,"alt":""}}]},"boxout":{"results":[]},"globalsidebar":{"results":[]},"video":{"results":[]},"scrollycontainer":{"results":[]},"bespokeinteractive":{"results":[]},"storycontainer":{"results":[]},"interactive":{"results":[]},"sectionheader":{"results":[]},"statementdisruptor":{"results":[]},"fullbleedphoto":{"results":[]},"tocitem":{"results":[]},"quizcontainer":{"results":[]},"generalup":{"results":[]},"twoupmedium":{"results":[]},"accordion":{"results":[]},"factoid":{"results":[]},"promobarwithquote":{"results":[]},"oneupmedium":{"results":[{"id":"3FEC717B2C0E40F5838E8A8233CE1310","displayName":"One Up Medium Inline topper","mediaID":{"value":"topper"},"sectionTitle":{"jsonValue":{"value":"Get the latest"}},"sectionHeader":{"jsonValue":{"value":""}},"sectionDek":{"jsonValue":{"value":"\u003cp\u003eSeptember 5, 2024\u003c/p\u003e\n\u003cp\u003e\u003cem\u003eIn the time since we first published this article, McKinsey has continued to explore the topic. Read on for a summary of our latest insights.\u003c/em\u003e\u003c/p\u003e\n\u003cp\u003eThe \u003ca href=\"/industries/real-estate/our-insights/a-new-way-to-decarbonize-buildings-can-lower-emissions-profitably\"\u003ereal estate industry accounts for approximately 40 percent\u003c/a\u003e\u0026nbsp;of global combustion-related emissions, 28 percentage points of which come from building operations. That means most of the emissions from the world\u0026rsquo;s real estate industry come from running buildings as opposed to building them. Though these are daunting figures, there is good news. First, it\u0026rsquo;s possible to decarbonize building operations profitably\u0026mdash;and the ways to do it already exist at scale. Second, making net-zero plans is now faster and easier thanks to today\u0026rsquo;s latest technologies.\u003c/p\u003e\n\u003cp\u003eExisting options for decarbonizing buildings include \u003ca href=\"/industries/electric-power-and-natural-gas/our-insights/building-decarbonization-how-electric-heat-pumps-could-help-reduce-emissions-today-and-going-forward\"\u003eheat pumps\u003c/a\u003e; the \u003ca href=\"/capabilities/sustainability/our-insights/net-zero-electrical-heat-a-turning-point-in-feasibility\"\u003eelectrification of heating\u003c/a\u003e, cooling, and cooking elements; improved envelopes and better insulation in buildings; and on-site renewables. Although these sustainable upgrades may require \u003ca href=\"/industries/engineering-construction-and-building-materials/our-insights/building-value-by-decarbonizing-the-built-environment\"\u003eupfront investment\u003c/a\u003e, they can create significant savings over time.\u003c/p\u003e\n\u003cp\u003eThe traditional approach to creating a net-zero game plan for a portfolio\u0026mdash;sending an engineer in to file a report on each building\u0026mdash;can be slow, laborious, and expensive. Fortunately, solutions such as using artificial intelligence and machine-learning-based approaches are now an option. These tools can pull from a wide range of data sources to quickly formulate net-zero plans, even for portfolios with thousands of buildings. That\u0026rsquo;s a boon for building owners and operators, many of whom are facing \u003ca href=\"/industries/real-estate/our-insights/proposed-climate-rule-signals-new-era-for-real-estate\"\u003enew pressures to decarbonize from regulators\u003c/a\u003e\u0026nbsp;and from tenants and investors who have made their own net-zero commitments.\u003c/p\u003e\n\u003cp\u003eClimate change is a serious challenge. But the fact that the world can get closer to net zero by decarbonizing 28 percent of global emissions in financially neutral or positive terms with today\u0026rsquo;s technology is reason to be hopeful. As real estate owners and operators create net-zero plans for their assets, these actions will create demand signals for heat pump and solar manufacturers, letting them know how much they must produce to effectively scale. The contractor and technician ecosystem can then be made ready for mass deployment. It can all happen now. It\u0026rsquo;s just a matter of getting started.\u003c/p\u003e\n\u003cp\u003e\u003cem\u003eArticles referenced:\u003c/em\u003e\u003c/p\u003e\n\u003cp\u003e\u0026ldquo;\u003ca href=\"/capabilities/sustainability/our-insights/net-zero-electrical-heat-a-turning-point-in-feasibility\"\u003eNet-zero electrical heat: A turning point in feasibility\u003c/a\u003e,\u0026rdquo; July 2024\u003c/p\u003e\n\u003cp\u003e\u0026ldquo;\u003ca href=\"/industries/real-estate/our-insights/a-new-way-to-decarbonize-buildings-can-lower-emissions-profitably\"\u003eA new way to decarbonize buildings can lower emissions\u0026mdash;profitably\u003c/a\u003e,\u0026rdquo; November 2023\u003c/p\u003e\n\u003cp\u003e\u0026ldquo;\u003ca href=\"/industries/engineering-construction-and-building-materials/our-insights/building-value-by-decarbonizing-the-built-environment\"\u003eBuilding value by decarbonizing the built environment\u003c/a\u003e,\u0026rdquo; June 2023\u003c/p\u003e\n\u003cp\u003e\u0026ldquo;\u003ca href=\"/industries/electric-power-and-natural-gas/our-insights/building-decarbonization-how-electric-heat-pumps-could-help-reduce-emissions-today-and-going-forward\"\u003eBuilding decarbonization: How electric heat pumps could help reduce emissions today and going forward\u003c/a\u003e,\u0026rdquo; July 2022\u003c/p\u003e\n\u003cp\u003e\u0026ldquo;\u003ca href=\"/industries/real-estate/our-insights/proposed-climate-rule-signals-new-era-for-real-estate\"\u003eProposed climate rule signals new era for real estate\u003c/a\u003e,\u0026rdquo; June 2022\u003c/p\u003e"}},"backgroundColor":{"jsonValue":{"id":"31b16899-4a5f-49ba-9314-bec2a4722f8c","url":"/sitecore/content/repository/rendering-parameters/jss/background-colors/lightest-grey","name":"Lightest Grey","displayName":"Lightest Grey","fields":{"Value":{"value":"lightest-grey"},"Key":{"value":"Lightest Grey"}}}},"gradientDirection":{"jsonValue":{"id":"fe7d5f87-23a2-4d63-8792-5049643fb8eb","url":"/sitecore/content/repository/rendering-parameters/jss/gradient-directions/top-right","name":"Top Right","displayName":"Top Right","fields":{"Value":{"value":"top-right"},"Key":{"value":"Top Right"}}}},"manualSelection":{"targetItems":[]},"readMoreLink":{"url":"","linkType":"internal","className":"","text":"","target":"","name":"Read More Link","queryString":"","anchor":""},"displayMode":{"jsonValue":null},"headerAlignment":{"jsonValue":null},"hideEyebrows":{"boolValue":false},"hideImages":{"boolValue":false},"imageRenderingMode":{"jsonValue":null},"hideDescription":{"boolValue":false},"showBlueLines":{"boolValue":false},"useSquareMedia":{"boolValue":false},"videoAutoplay":{"boolValue":false},"secureAssets":{"boolValue":false},"showFullDek":{"boolValue":false}}]},"oneupmediumquote":{"results":[]},"gridwall":{"results":[]},"twoupsmall":{"results":[]},"oneclicksubscribe":{"results":[]},"promobar":{"results":[]},"promobanner":{"results":[]},"sectionhero":{"results":[]},"threeuplinklist":{"results":[]},"table":{"results":[]},"explainertooltip":{"results":[]},"isFiveFiftyHorizontalArticle":{"boolValue":false},"fiveFifty":{"results":[]}},"contextItem":{"ancestors":[{"breadCrumbUrl":{"path":"/industries/real-estate/our-insights"},"breadCrumbTitle":{"value":"Our Insights"},"isMiniSite":{"boolValue":false},"displayName":"Our Insights","template":{"id":"85FF05307883480F9A4C82123F72FFD8"}},{"breadCrumbUrl":{"path":"/industries/real-estate/how-we-help-clients"},"breadCrumbTitle":null,"isMiniSite":{"boolValue":true},"displayName":"Real Estate","template":{"id":"414C6C64AD35440E9668CF39D8A18CCF"}},{"breadCrumbUrl":{"path":"/industries"},"breadCrumbTitle":{"value":"Industries"},"isMiniSite":{"boolValue":false},"displayName":"Industries","template":{"id":"85FF05307883480F9A4C82123F72FFD8"}},{"breadCrumbUrl":{"path":"/"},"breadCrumbTitle":{"value":""},"isMiniSite":{"boolValue":false},"displayName":"Home","template":{"id":"85FF05307883480F9A4C82123F72FFD8"}}]}}},"placeholders":{"main-area":[],"sidebar-area":[]}}]}},"itemId":"b8ae47f4-ca2a-4239-8642-ba5e60136df9","pageEditing":false,"site":{"name":"website"},"pageState":"normal","language":"en","pageMetaData":{"alternateLanguages":[{"languageCode":"en","displayName":"English","url":"/industries/real-estate/our-insights/climate-risk-and-the-opportunity-for-real-estate"}],"currentLanguage":"en","navigationLink":"industries","activeItemId":"{165F944B-FA07-40AC-B60E-32387588D5A6}","miniSiteId":"{BA84E920-F164-49D9-8DAC-A78D035224B2}","officeCode":"","officeDisplayName":"","subscriptionPracticeData":null,"isAlaisedPage":false,"originalHostName":"www.mckinsey.com","updatedDate":"2024-11-08T15:51:41Z","createdDate":"2024-09-02T08:38:21Z","practice":{"isDefaultPractice":false,"name":"Real Assets","code":"N36","stickyTitle":"Sign up for emails on new Real Assets articles","stickySubtitle":"Never miss an insight. 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