Does Climate Change Affect Investment Performance? Evidence from Commercial Real Estate

44 Pages Posted: 8 Nov 2021

See all articles by Dragana Cvijanovic

Dragana Cvijanovic

Cornell SC Johnson College of Business

Alex Van de Minne

University of Connecticut - School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: November 4, 2021

Abstract

Combining granular data on temperatures across the continental US with micro-level commercial real estate (CRE) data from 1991 to 2020, we study the impact of exposure to extreme temperature shocks on investment performance of CRE at the individual asset level. We find that exposure to extreme temperatures significantly reduces average realized total returns in CRE. This result is driven by reduction in asset returns. We do not observe a significant effect of income return. We document substantial variation in sensitivity to temperature shocks across property types. Our results seem to be driven by shocks to time-varying CRE risk premium due to decreased predictability of future rental income.

Keywords: climate change, climate finance, commercial real estate, economic costs

JEL Classification: R30, F64, C21

Suggested Citation

Cvijanovic, Dragana and Van de Minne, Alex, Does Climate Change Affect Investment Performance? Evidence from Commercial Real Estate (November 4, 2021). Available at SSRN: https://ssrn.com/abstract=3956714 or http://dx.doi.org/10.2139/ssrn.3956714

Dragana Cvijanovic (Contact Author)

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

Alex Van de Minne

University of Connecticut - School of Business ( email )

368 Fairfield Road
Storrs, CT 06269-2041
United States

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