Does Climate Change Affect Investment Performance? Evidence From Commercial Real Estate
MIT Center for Real Estate Research Paper No. 21/15
University of Connecticut School of Business Research Paper No. 22-02
51 Pages Posted: 11 Nov 2021 Last revised: 2 Mar 2022
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Does Climate Change Affect Investment Performance? Evidence From Commercial Real Estate
Does Climate Change Affect Investment Performance? Evidence from Commercial Real Estate
Date Written: November 10, 2021
Abstract
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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