New Report from Heitman & ULI – Climate Migration and Real Estate Investment Decision-Making


New Research from ULI and Heitman Finds Need for Deeper Understanding of the Risks Posed by Climate Migration

  • Climate change is prompting movement of people and jobs, with more expected in the years ahead as a result of the warming earth
  • Climate migration will benefit some locations while others will suffer
  • Investment underwriting needs to be informed by asset- and market-level appraisals of a location’s exposure to climate migration, and its capacity for resilience or adaptation

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A new report by the Urban Land Institute (ULI) and Heitman LLC (Heitman), a global real estate investment management firm, indicates that environmental change is prompting migration of people and businesses, movements that may trigger significant shifts in demand for real estate. Just as investors are being forced to recognize and price the physical risks associated with climate change – wildfires, hurricanes, excessive heat – they need to integrate climate migration risk into their underwriting models.

Climate Migration and Real Estate Investment Decision-Making looks at the future impact of climate migration on real estate and recommends a broader approach for assessing the risk on investment. The report cites the Internal Displacement Monitoring Centre that estimates that disasters displaced nearly 31 million people globally in 2020. The same organization also projects that approximately 14 million people could be displaced annually by sudden onset disasters like hurricanes and floods.

ULI and Heitman have developed a new two-step framework for assessing climate migration-related risks in the real estate investment decision-making process. Investors can use the framework to identify which markets and submarkets face heightened exposure to climate migration, which place-specific factors are most likely to exacerbate or mitigate those location pressures, and which factors are likely to be material within particular investment horizons.

The research further concludes that real estate investors should continue to build their capacity to assess and manage migration-related and broader market-level investment risks and should actively understand the climate change adaptation needs of key markets. This requires shifting from an asset-centric view to a market-level appraisal of risk and resilience drivers. Ultimately, investors are urged to direct their investment to assets and locations that are adaptable to changing environmental conditions and enhance the overall social and ecological resilience of communities.

“The real estate sector is reaching a crucial stage in the evolution of its approach to climate risk,” said ULI’s global CEO, Ed Walter. “We are coming to understand that leadership from the real estate investment industry is essential for society’s approaches to climate change to be effective, efficient, and equitable, versus deferring difficult decisions and displacing those who cannot afford to adapt.

“While many investors remain focused on short-term and asset-centric views of risks, thinking that they can shift investments before climate risks bite, leading investors are now turning down opportunities despite strong near-term fundamentals,” continued Walter. “They are drawing connections between migration, climate risk, and resilience. They are identifying methods and indicators to assess these links and adapting their investment strategies accordingly.”

“Heitman recognizes that climate migration has the potential to impact investment portfolio performance and the need for our industry to integrate this potential risk into how it assesses prospective investments,” said Maury Tognarelli, Heitman CEO. “Migration patterns in reaction to climate change could lead to shifts in demand for real estate and we must begin to prepare for the possibility of societal and economic disruption fueled by this dimension of climate risk. Just as we need to underwrite the impact of physical risks on property value, we need to anticipate the trajectory of climate migration and incorporate it into our investment analysis.”

“A few years ago, only a handful of forward-thinking real estate investors were assessing and looking to mitigate climate risk in their real estate portfolio,” said Billy Grayson, Executive Vice President for Centers and Initiatives at ULI. “Thanks to Heitman’s support and partnership with ULI, our work together has helped shape the industry’s understanding of both the physical and transition risks of climate change and has allowed us to explore more far-reaching challenges like the long-term migration patterns driven by climate and extreme weather events. Through this report, global investors can begin working these concepts into their long-term investment analyses and capital plans in the near future.”

“For many in the northern hemisphere, climate migration isn’t readily visible in their home markets. In fact, migration toward vulnerable areas is outpacing migration away,” said Mary Ludgin, Heitman Head of Global Research. “We can’t tell you exactly when that will change; we can tell you that change is coming.”

As part of ULI and Heitman’s framework, investors are advised to rethink conventional market-level research and ask whether an economy is strong enough to absorb and recover from a climate shock. This means looking first at the climate sensitivity of the dominant economic sectors within a market and then at the extent to which climate-sensitive sectors can manage risks. Both the agriculture and energy sectors are identified as examples of sensitive industries, and participants in the report’s research cite Singapore and the Netherlands as places with robust climate strategies and which will be better positioned to absorb climate shocks and stressors.

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The report supports greater engagement with the emerging conversation about receiving communities – relatively safer markets that may experience in-migration. Managed retreat can be encouraged, where appropriate, through public investment in infrastructure and amenities that can help steer development and location decisions away from high-risk areas, whether slightly further inland (for coastal risks) or further afield. For example, in the United States climate refuge might be offered by Minnesota; in the Netherlands by the higher elevation east; and in Indonesia, by Borneo.

The report warns of property value-driven approaches to adaptation. In prioritizing infrastructure investment in areas where high-value property is concentrated, such approaches exacerbate inequalities and can trigger migration by lower income residents as a default, requiring a careful approach to managing population change.