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Commercial real estate turns to climate risk models as insurers price in losses
First Street is being acquired by MSCI in a deal reportedly worth $120 million, as the climate risk assessment market is forecast to reach about $13 billion by 2030.
With corporate ESG pushes fading, climate risk data is becoming a core underwriting input in commercial real estate, according to Bisnow. Developers and investors are building or buying predictive, physics based models to evaluate exposure to floods, heat, and severe storms as insurers raise premiums and extreme weather losses mount.
Bisnow reports that the climate risk assessment industry, including a few hundred firms, is expected to roughly double to about $13 billion by 2030, citing Boston Consulting. CRE investment in these products has accelerated, including BlackRock acquiring a climate scenario model from Baringa Partners in 2021, and CBRE and JLL announcing climate science partnerships in the past two years.
MSCI purchased First Street in a deal reportedly worth $120 million, and is focused in part on supply chain intelligence for assessing financial exposure and resiliency, Bisnow said. Jeremy Porter of First Street, described by Bisnow, said climate risk is moving from a secondary consideration to core underwriting analytics, and that a pricing gap remains because many underwriting approaches have not fully caught up to climate inputs.
Bisnow also points to how the information is affecting insurance pricing and underwriting, which can influence deal evaluation. Joseph Sumberg of Galvanize said real estate investors are increasingly including climate risk information in their process, adding that reliance on previous industry inputs is now viewed as inadequate.