Jul 11, 2023

How extreme heat can damage property and pose risk for real estate investors

Risk | by Alexandra Jones, Contributing Writer | 2 Minutes

As extreme weather events linked to climate change become more frequent, real estate investors must consider more than market trends. Environmental hazards like extreme heat can cause costly property damage, reduce the return on your investment, and pose a health risk to residents. That’s why it’s important to understand the risk of extreme heat to investment properties, use accurate information to inform your strategy, and ask the right questions of your climate data provider.

Property owners like investors and real estate investment trusts (REITs) can use ClimateCheck’s clear, easy-to-access data to gain a comprehensive understanding of their climate risks. That includes the specific dangers associated with extreme heat, like structural degradation, higher energy use, health and safety concerns for residents, and effects on outdoor features like landscaping. With data-informed insights into these risks, investors can make smart decisions to safeguard their investments for the future.

Higher Energy Costs

Hotter temperatures make air conditioning units work harder, causing wear and tear and using more energy. As extreme heat events become more frequent, property owners will see higher utility bills as cooling systems work overtime to keep indoor temperatures comfortable for residents. This is especially true of older buildings without energy-efficient upgrades.

“Rising energy costs increase operating expenses over time and ultimately eat into the properties IRR. Understanding an investment portfolio’s climate risk can inform a strategy for upgrading existing properties with heat-mitigating features to be more energy efficient, lowering utility costs,” says ClimateCheck CEO Cal Inman.

Structural Degradation and Reduced Longevity

Extreme heat can affect the structural integrity of properties, causing costly damage and shortening the life of buildings. Properties affected by these types of heat-related damage may be worth less on the market, and owners may have a hard time attracting buyers or tenants. High temperatures can weaken or damage exteriors like wood siding, paint, roofing, and foundations, threatening the safety of building occupants and necessitating extensive repairs and renovations. Basements, crawlspaces, attics, and bathrooms are some of the most at risk.

Depending on the property’s location, extreme heat may also bring with it extended periods of high humidity. In addition to affecting a building’s structure, humidity can promote the growth of mold and mildew, potentially requiring costly remediation and creating health hazards for residents.

Health and Safety Concerns for Residents

Extreme heat poses serious health risks for the people who live in investment properties, too. Heat-related illnesses like heat rash, heat cramps, heat exhaustion, and heatstroke can impact residents in buildings without adequate ventilation or cooling systems. Children, the elderly, and people with medical conditions are the most at risk. Properties in densely populated cities experience more intense effects of extreme heat due to the urban heat island effect. Incorporating resilient features like emergency cooling or heating rooms powered by a backup generator in new construction can help mitigate risk to residents.

“Understanding the health risks of extreme heat is essential to health and safety for tenants or occupants,” says Inman. “Without addressing that risk, investors could experience increased turnover and reputational risk—all of which can impact return.”

Damage to Landscaping and Outdoor Features

With unprecedented heat waves causing damage to roadways, bridges, and other outdoor structures, it’s no surprise that external property features are at higher risk, too. Extreme heat can damage an investment property’s exterior elements, including landscaping and outdoor features.

Long periods of intense, dry heat can cause stress for trees, grass, and other ornamental plants, contribute to soil erosion, and damage hardscape structures like walkways, patios, and retaining walls. In addition to affecting curb appeal, the cost of maintaining or restoring outdoor elements affected by extreme heat can be high.

With the right tools and information, investors can mitigate the effects of extreme heat on properties and occupants. As heat waves become more frequent and more intense due to the effects of climate change, it’s important for investors to understand and mitigate these risks. Access to accurate climate data is essential to assess the risks posed by extreme heat to your investment properties.

ClimateCheck provides investors with comprehensive insights into the specific environmental risks associated with their properties. Our experts analyze government, academic, and institutional data to assess climate risk for individual properties or across an entire portfolio. By incorporating climate risk assessments into their investment strategies, real estate investors can boost the resilience and long-term profitability of their portfolios while keeping tenants and residents safe.

Looking to incorporate climate into your risk assessments?

Alexandra Jones is a Philadelphia-based writer and author who covers agriculture and climate.