Does Climate Change Affect Investment Performance? Evidence From Commercial Real Estate
51 Pages Posted: 11 Nov 2021 Last revised: 2 Mar 2022
Date Written: November 10, 2021
Combining granular data on temperatures across the continental US with micro-level com-mercial real estate (CRE) data from 1980 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 ef-fect on income return. We document substantial variation in sensitivity to temperature shocks across property types. Our results are driven by shocks to time-varying CRE risk premium due to decreased predictability of future rental income.
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