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Climate change and commercial real estate: Evidence from Hurricane Sandy

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  • Jawad M. Addoum
  • Piet Eichholtz
  • Eva Steiner
  • Erkan Yönder

Abstract

We study how professional investors capitalize flood risk in commercial real estate (CRE) markets after hurricane Sandy. We show that New York CRE exposed to flood risk trades at a large, persistent discount. CRE in Boston, which mostly escaped direct hurricane‐related damage, also exhibits persistent price penalties. These price effects are driven by asset‐level capitalization rates, not building occupancy. Results from a placebo test using real estate prices in Chicago show that our inferences are not driven by coincidental, unrelated price trends for waterfront real estate assets. Our results are consistent with professional investors responding to a persistent shift in the salience of flood risk post‐Sandy, even in locations spared by the disaster.

Suggested Citation

  • Jawad M. Addoum & Piet Eichholtz & Eva Steiner & Erkan Yönder, 2024. "Climate change and commercial real estate: Evidence from Hurricane Sandy," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 52(3), pages 687-713, May.
    • Handle: RePEc:bla:reesec:v:52:y:2024:i:3:p:687-713
    DOI: 10.1111/1540-6229.12435
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