This paper was commissioned to help support real estate practitioners and investors in understanding and managing the physical risks from climate change with a specific focus on how these risks affect commercial real estate asset values and prices. Regula-tors and market actors are signalling the need for forward-looking climate risk analysis and assessment of asset value impact, and the authors sought to assess the evidence that property markets are, or are not, responding to climate risk through pricing, capex or opex decisions. If climate change risks are being recognised by real estate partici-pants, then this should be observable through the literature that examines purchase/sale or opex/capex decisions. If such market evidence is lacking, on what basis are forward-looking projections of value at risk being made?

Climate events are not new—assets have always been exposed to extreme events some-times. But an increase in extreme weather events is having greater financial conse-quences that are being borne by insurers, owners and occupiers, as well as governments. The research thus focused on academic literature from the last decade to address the link between climate hazard and financial materiality through the variables and param-eters that go into financial modelling of climate impacts on value. With an emphasis on commercial property investment, the study sought to understand: 

◾ the extent to which the evidence demonstrates that real estate markets have priced in the risks from extreme weather and climate change; and 

◾ the channels through which the impacts of these risks on value have materialised.

A systematic, thematic review of English language academic literature on climate risk and real estate pricing and values was undertaken, focusing on developed real estate markets in North America, Australasia and Europe. The review found that evidence to date is more plentiful for residential rather than commercial real estate markets, although some recent research has begun to examine the commercial real estate sector in a more rigorous way. From the evidence on residential real estate, inferences were made for how these findings might apply to commercial real estate, noting that deci-sions by homeowners tend to be more subjective and less informed by professional advice than decisions taken by the real estate investment community who often adopt formal, rules-driven processes. Little literature was found on the response by commer-cial real estate tenants.