As 2019 unfolds, a number of dramatic developments are starting to reset the landscape for real estate investment. Here at MSCI, we see our real estate investing clients – who range from small family offices to some of the largest pensions and sovereign wealth funds globally – coming to terms with challenges such as environmental, social and governance-related (ESG) risks, geopolitical uncertainty and disruptive technology. In this article we discuss our top five emerging global trends.
1. ESG risks on the investment horizon
It is now clear that real estate investors are starting to take account of ESG considerations in structuring their portfolios, particularly as they come to realise that climate change could have a direct impact on the value of their own property assets and the way these need to be managed. At the same time they are becoming more and more aware of the real estate sector’s contribution to energy use and carbon emissions.
The U.S. government’s Fourth National Climate Assessment report, issued in November 2018, directly linked recent extreme weather events to changes in the climate. Meanwhile a European Commission report from July 2018 warned that the economic damage from coastal flooding in Europe could approach €1 trillion per year by 2100 without new investment in adaptation to climate change. But cli- mate change looks set to have a bigger impact on property in some places than in others. For example, in the near future, the value of real estate in coastal zones with a high risk of flooding may well fall relative to less flood-prone inland areas. This risk is highlighted in MSCI’s “ESG Trends to Watch in 2019” report.
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