The first half of 2025 has been marked by a series of climate extremes. Europe endured an early summer heatwave with temperatures exceeding 40°C (104 F), while Eastern China experienced similar conditions unusually early in the year. In the United States, Los Angeles faced unprecedented wildfires and Texas was hit by devastating floods. These events are not isolated anomalies but part of a broader pattern of intensifying climate volatility, and there is a growing awareness that environmental risks are now central to the resilience of real estate.
Insurance markets are responding. Properties tracked by the MSCI US Quarterly Property Index have seen insurance costs as a share of income double over the past five years. In regions with elevated exposure to wildfires, hurricanes and floods, insurers are becoming more selective in their underwriting. In some high-risk areas, policy non-renewals have increased, in turn impacting the willingness of banks to lend.
Rising insurance and operational costs are prompting occupiers to seek more resilient locations, while investors are increasingly factoring climate exposure into their decision-making. Proactive risk management and the need for more informed, location-sensitive strategies are becoming essential in our evolving climate.
Adaptation is key. At the building level, measures such as green roofs, weather-resistant materials and improved ventilation systems are becoming more common. But buildings do not operate in isolation. If the surrounding infrastructure is compromised even the most resilient structure can become a stranded asset. This makes locational factors just as important as physical design.
Tokyo offers a compelling example of how cities can adapt. Despite facing multiple climate threats, as well as non-climate hazards such as earthquakes and tsunamis, it remains one of Asia’s most invested real estate markets. The city has built underground reservoirs to manage floodwaters, enforces strict building codes and promotes decentralised power systems.
Tokyo’s earthquake insurance model offers a framework that could be adapted to climate-related risks. Premiums are government regulated and vary by seismic risk zone, while reinsurance is provided by government ensuring a safety net for major earthquake events ensuring losses from very large events don’t cripple the system. Buildings built to certain earthquake safety standards may qualify for discounts on premiums.
While this model offers valuable lessons, it is not a one-size-fits-all solution. Earthquake risk in Japan is typically high in severity but low in frequency. Climate-related risks, by contrast, are becoming both more frequent and more intense. Adapting the principles of the earthquake insurance system to the evolving nature of climate hazards will require innovation, flexibility, and collaboration between public and private sectors. Innovations such parametric insurance, that pay out a pre-agreed amount based on the occurrence of a specific event or condition, are another potential route.
Data and modelling also play an important role. Florida’s public hurricane risk model and the EU’s Copernicus Emergency Management Service are examples of how open-source data and information can support better decision-making. These tools help investors, and occupiers, assess exposure and guide adaptation strategies, particularly in the case of climate risk which can be highly localised.
Insurance is becoming a barometer of climate resilience and reflects the need for more robust planning and adaptation. For real estate, understanding this is now central to managing risk and protecting long-term value.
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