Does Climate Change Affect Investment Performance? Evidence From Commercial Real Estate

73 Pages Posted: 11 Nov 2021 Last revised: 28 Mar 2023

See all articles by Dragana Cvijanovic

Dragana Cvijanovic

Cornell SC Johnson College of Business

Alex Van de Minne

University of Connecticut - School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: March 27, 2023

Abstract

Combining granular data on temperatures across the continental US with micro-level commercial real estate (CRE) data from 1980 to 2020, we study the impact of exposure to extreme temperature shocks on investment performance of CRE at the individual asset level. We find that exposure to extreme temperatures significantly reduces average realized total returns in CRE. This result is driven by reduction in asset returns. We do not observe a significant effect on income return. We document substantial variation in sensitivity to temperature shocks across property types. Our results are driven by shocks to time-varying CRE risk premium due to climate-induced decreased predictability of future cash flows.

Suggested Citation

Cvijanovic, Dragana and Van de Minne, Alex, Does Climate Change Affect Investment Performance? Evidence From Commercial Real Estate (March 27, 2023). MIT Center for Real Estate Research Paper No. 21/15, University of Connecticut School of Business Research Paper No. 22-02, Available at SSRN: https://ssrn.com/abstract=3960805 or http://dx.doi.org/10.2139/ssrn.3960805

Dragana Cvijanovic

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

Alex Van de Minne (Contact Author)

University of Connecticut - School of Business ( email )

368 Fairfield Road
Storrs, CT 06269-2041
United States

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