Nearly one in 10 Apac Reit assets at high risk from climate change: report
Coastal inundation and flooding will drive hazards across Apac region from now until the end of the century, it says
CLOSE to one in 10 assets belonging to real estate investment trusts (Reits) across Asia-Pacific (Apac) will be at high risk from the effects of climate change and extreme weather by 2050.
This is according to a report published on Wednesday (May 22) by XDI (Cross Dependency Initiative), a company which provides analysis in physical climate risk.
XDI said coastal inundation and flooding will drive hazards across the Apac region from now until the end of the century.
It added that coastal inundation will also “outstrip other hazards” from 2050, highlighting the vulnerability of coastal property.
Some 8.9 per cent of assets in the portfolios of Singapore-listed Reits will be considered high risk by 2050.
This is the largest percentage in Apac after Australia-listed Reits, where 9.4 per cent of assets will be considered high-risk properties.
Philip Tapsall, the group lead for the corporate and finance sector engagement team at XDI, described the findings as “concerning”.
“The global market for Reits is estimated to be around US$3 trillion dollars – a sizeable investment class attracting capital from institutional and retail investors, and debt providers including banks,” Tapsall said.
“On their own and applied across the global real estate sector in general, this represents a potentially significant financial risk to investors and other capital providers.”
SEE ALSO
Purpose of report
The Apac Reit Physical Climate Risk Report analysed 2,134 assets held by the 20 largest Reits by market capitalisation in Japan, Australia, Singapore and Hong Kong to understand their risk from climate change and extreme weather from now until the end of the century.
It did so by modelling projections of damage over time to these Reits’ built assets from hazards such as flooding, coastal inundation, hurricanes, cyclones and forest fire.
The report identifies properties considered high risk by 2050 under Representative Concentration Pathways (RCP) 8.5, which refers to a scenario where global temperature rises about 4.3 deg C by 2100, relative to pre-industrial temperatures.
High risk properties are assets which are at high risk of economic costs and financial losses due to physical damage and productivity loss. They are also vulnerable to rising insurance costs.
Tapsall said that Reits have a reputation of being a “safe haven” for investors as they offer stable and predictable returns.
However, the report tests whether the assumptions of stability and security of the Reit market hold true in a future where climate change and extreme weather events are increasing.
Findings across Apac
Among the 2,134 Apac Reit assets analysed, 8.1 per cent, or 173 of them, were considered to be high risk by 2050.
The number of high-risk properties across the Apac Reits assessed will grow from 154 in 2020 to 173 in 2050, and further to 235 by 2100. This translates to a 53 per cent increase between 2020 and the end of the century.
While Japan Reits are expected to see the highest increase in percentage of high risk properties (91 per cent) between 2020 and 2100, Singapore Reits will see the smallest increase (29 per cent) over the same period.
Hong Kong Reits will see the largest increase of Maximum-to-date Value-at-Risk (MVAR) at 423 per cent between 2020 and 2100, followed by Singapore at 285 per cent. Australia Reits will see the smallest increase at 171 per cent.
MVAR is a measure to quantify the damage to the built environment from climate change hazards. It is based on the annual average loss due to extreme weather damage to a property and is expressed as a percentage of the replacement cost of the property.
High risk properties are those with a MVAR of at least 1 per cent.
Findings by region
Singapore will have the second highest number of high-risk properties (49 properties) after Australia (72 properties) by 2050. The vast majority of these properties are located in Singapore, followed by China.
The damage risk is mostly due to coastal Inundation followed by surface water flooding. However, forest fires and extreme wind see the greatest increase towards the end of the century, said the report.
Australia-listed Reits will have the highest number of high-risk properties (HRP) by 2050. The majority of these properties are located overseas with the largest numbers in China, Germany and the US.
Within Australia, the majority of high-risk properties are located in New South Wales, followed by Queensland. Both states are located on the east side of Australia.
The report said that coastal inundation posed the largest hazard to these properties, followed by riverine flooding.
However, the risk posed by cyclonic wind and extreme wind will increase towards the end of the century, it added.
Meanwhile, Hong Kong-listed Reits will see the greatest increase in damage risk across their portfolios out of all the Apac markets analysed. They will see their risk jump 423 per cent from 2020 to 2100.
Most assets identified as being high risk by 2050 are located in Hong Kong as well as Guangdong and Jiangsu, coastal provinces in mainland China.
There are also high-risk properties located in Sichuan in mainland China and the Australian state of New South Wales.
In 2050, the greatest risk to Hong Kong-listed Reit assets is from surface water flooding followed by riverine flooding. From 2050, there is a “dramatic increase” in risk of damage from coastal inundation, said the report.
In Japan, risk of damage from coastal inundation posed the biggest hazard to Japan Reits, followed by riverine flooding. However forest fires and cyclone winds also see significant increases towards the end of the century, said the report. All assets managed by the Japan Reits analysed in the report are located in Japan.
XDI said that it hoped the report will encourage Reits to identify risks posed by climate change, report transparently and take action to reduce emissions.
Decoding Asia newsletter: your guide to navigating Asia in a new global order. Sign up here to get Decoding Asia newsletter. Delivered to your inbox. Free.
Copyright SPH Media. All rights reserved.
