Heat Stress and Commercial Real Estate Returns

51 Pages Posted: 11 Jul 2022 Last revised: 10 Dec 2022

See all articles by Chia-Chun Chiang

Chia-Chun Chiang

University of Texas at El Paso - College of Business Administration

Zifeng Feng

The University of Texas at El Paso

David Harrison

affiliation not provided to SSRN

Date Written: December 9, 2022

Abstract

We investigate the relation between heat stress (abnormal temperature) and the return on U.S. commercial real estate (CRE). Using temperature data from the National Oceanic and Atmospheric Administration (NOAA), we construct an abnormal temperature measure for each core-based statistical area (CBSA) in the U. S. We first document that U.S. metropolitan areas experienced higher temperatures from 2012 to 2019 than their historical averages. Next, employing the adoption of the signature Paris Agreement as an exogenous shock to investor attention regarding climate risk, we provide evidence that high abnormal temperature regions, on average, exhibit lower CRE returns after the accord. We also show that the negative relation between abnormal temperature and CRE returns is not driven by heterogeneity in the property locations, but rather, is likely attributable to the increased salience of environmental risk awareness in the post Paris Agreement era. Overall, this paper contributes to the emerging literature examining climate risk and real estate by providing evidence that abnormally high temperatures are negatively associated with CRE returns.

Keywords: climate risk, climate change, temperature, heat stress, commercial real estate.

JEL Classification: Q54, R11, R33

Suggested Citation

Chiang, Chia-Chun and Feng, Zifeng and Harrison, David, Heat Stress and Commercial Real Estate Returns (December 9, 2022). Available at SSRN: https://ssrn.com/abstract=4150066 or http://dx.doi.org/10.2139/ssrn.4150066

Chia-Chun Chiang

University of Texas at El Paso - College of Business Administration ( email )

University Library - Acquisitions Department
500 West University Avenue
El Paso, TX 79968
United States

Zifeng Feng (Contact Author)

The University of Texas at El Paso ( email )

500 W. University Ave.
El Paso, TX 79968
United States

HOME PAGE: http://https://sites.google.com/view/zifeng-feng/home

David Harrison

affiliation not provided to SSRN

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