Extreme weather makes it more difficult to finance and insure buildings. It makes investors harder to find because investing is riskier. It makes buildings more expensive to operate and more costly to occupy. Climate change is a multifaceted threat to the real-estate sector, affecting cash flow, value, and long-term financial performance.
But it brings opportunity, too. Decisive developers, owners and occupiers stand to benefit from a flight to prime centred on resilient real estate. As climate adaptation becomes a core criterion in decisions around investment and expansion, cities that create resilient infrastructure make their property more attractive to residents, businesses, and visitors.
2024 was marked by devastating wildfires, destructive storms, and extreme heat. Spain was hit by floods, Hurricane Helene tore through the south-eastern United States, and Greece experienced the hottest summer in its meteorological history.
Globally, it was the hottest year on record and the first when average global temperatures exceeded 1.5°C over pre-industrial levels. With this critical threshold breached, climate impacts become more unpredictable. January 2025’s wildfires in Los Angeles were a reminder that 2024 was no one-off.
Average global temperatures compared to pre-industrial average
1.5c threshold breached for the first time on an annual basis
Source: Savills Research using Copernicus Climate Change Service ERA5, Global surface air temperature increases above the 1850-1900 pre-industrial reference period as 5-year averages since 1850
Against this backdrop, cities and the real estate sector need to act quickly to remain centres of commerce, industry, and tourism. They need to shield their populations or risk social breakdown or exodus. Adapting will take major investment, but failing to adapt will likely cost more.
“The ability of buildings to bounce back after natural disasters and extreme weather events will be crucial to the sustainability of real-estate assets,” says Marylis Ramos, director of Savills Earth Advisory. “Adapting to risk now will save in terms of repair costs, insurance costs, the potential loss of tenants and the reputational damage that might arise from failing to protect buildings and occupants from extreme weather events.”
The growing risk of climate change to real estate
The immediate result of extreme weather on real estate is that buildings flood, storms cut power, and offices become too hot to work in. Secondary impacts include the growing risk of subsidence, a threat compounded by groundwater extraction. New York, Shanghai, and Jakarta are all sinking cities, making them more susceptible to rising sea levels.
Climate change makes buildings more expensive to operate and insure, increasing development costs and making real estate less attractive to investors. “There’s still a limited understanding of the significant financial risk attached to all of the climate-related changes that are happening in the world,” says Ramos. “It’s difficult for people to grasp that these events have a link to their investments. But increasingly, investors will be looking at these factors because they will have to.”
Source: Savills Research
The effects of climate change on insurance costs
Insurance companies are among the first to react to extreme weather, given their business model depends on assessing risk. According to insurer AON, hurricanes, fires and other disasters caused $368 billion of losses in 2024.
Insurance costs have risen as a result. Properties tracked by the MSCI US Quarterly Property Index have seen insurance costs as a share of income double over the past five years. The Deloitte Center for Financial Services predicts the costs of commercial buildings insurance in the US will rise at an average compound annual growth rate (CAGR) of 8.7% until 2030, and at 10.2% in states with the highest extreme weather risk.
These are US examples, but the phenomenon is global. Growing insurance and operational costs drive rent increases and a flight of occupiers to less risky, or better adapted, locations. When it becomes impossible to afford sufficient insurance, investors or lenders have to take on more risk or move money to safer assets. At the same time, buildings become less saleable and more illiquid, creating stranded assets.
“The impacts of climate change on extreme weather events and longer-term climate patterns – for example, sea level rise – have financial repercussions for the real estate sector and increase the risk of stranded assets,” says Sarah Brayshaw, Principal Climate Risk and Resilience Consultant at Savills.
“There are direct and indirect factors that could lead an asset to become stranded. Direct factors are assets not being able to recover to their original state as a result of damage from an extreme weather event. Indirect factors are the declining market value of buildings in areas with high exposure to climate hazards. This can be exacerbated by insurance cover being unaffordable or even unavailable when insurers cease underwriting new policies in high-risk areas.”
Global insured losses by climate hazard
Source: Savills Research using AON
Climate risks by property sector
Sectors are not impacted equally, however. Residential property tends to have the greatest risk, because homes have permanent residents – some vulnerable – who often stay in a property for a long time. In contrast, industrial units are usually shorter lived and less likely to be located in the most at-risk areas, such as on the coast.
But there are still multiple factors to consider. “Location is key for industrial units and infrastructure,” says Tom Dearing, Associate Director – Climate and Major Projects at Savills. “Multiple public and private transport links improve the resilience of access for the workforce, and for some facilities access to multiple ports or airports for offshore supply chains or sales is important. And – while not every facility can be a power island – on-site renewable or low-carbon generation coupled with energy storage is attractive not just for reducing greenhouse gas emissions, but also for tiding over power outages.”
Risk, reliance and adaptation: the city view
To protect property – and prosperity – cities need to mitigate and adapt. When they mitigate, they reduce their contribution to climate change. When they adapt, they prevent or lessen the impacts of extreme weather.
Adaptation is about more than buildings. It doesn’t matter how resilient your building is if flooding regularly disrupts local infrastructure and leaves occupiers stranded.
Whole cities need to adapt, to protect infrastructure and reassure occupiers, investors, and developers. Landowners are more likely to pay a premium to develop resilient real estate, or retrofit resilience into older buildings, when entire cities actively pursue adaptation strategies. Affordable insurance cover will depend increasingly on a city’s ability to reduce climate risk for its built environment.
Cities face different climate-related threats and are at different stages of preparedness. One city leading the way is Tokyo. In 2022 it launched the Tokyo Resilience Project, a plan to protect the city for the next 100 years from risks including flooding, earthquakes and volcanic eruptions and their potential impact on infrastructure and power supplies.
A particular focus is ensuring the resilience of high-rise buildings. The city’s Mori JP Tower, for example, has been designed to be earthquake and flood-resistant. It has its own co-generation system for power and heat, as well as a large shelter that can accommodate 3,600 people.
But for all cities, more needs to be done. Our map highlights the vulnerability of global cities that are high on the list of international investors and occupiers. It also gives examples of how they are adapting to these risks.
In the next section, we’ll take a closer look at adaptations that are making a difference, as investors and insurers increasingly analyse a range of datasets – including weather patterns, environmental factors, and historical disaster records – to evaluate present and future climate-related risk.
How cities are adapting to thrive
Fire
The risk of wildfires is increasing globally, and new and larger areas are being affected. Los Angeles is currently recovering from the wildfires of January 2025, which were far from the first in the region in recent years.
Three-quarters of California’s most destructive wildfires have occurred since 2015. While tougher regulations were introduced following fires in 2018, these were not applied retroactively to existing buildings – meaning the majority of housing stock was not covered.
Australia has a similar hot, dry climate. New South Wales alone has 1.4 million properties in bushfire-prone land. Like California, new building codes have been introduced, which in Australia include a grading system of risk based on the intensity of bushfire heat any building is likely to be exposed to.
Mt Coot-Tha House in Brisbane is an example of resilient home design in the second highest bushfire zone. Designed by Nielsen Jenkins, the property is made from resilient materials and protected by high blockwork walls. It sits inside a perimeter of “wet walls”, flat green courtyards mimicking forest clearings that soak up surface water and act as a further fire-protection measure.
Water
Sea levels are increasing by 0.33cm (0.13 inches) per year. Cities are also threatened by flash foods caused by increased rainfall and snow melt. Beyond the obvious physical damage, properties in areas prone to flooding are also likely to face rising insurance premiums.
Tokyo and Amsterdam are both flood-prone cities and are at the forefront of urban flood-resilience efforts. Tokyo has built a massive underground reservoir that collects water from heavy rainfall. Estimates suggest the development saves nearly 30,000 housing units from flooding every year.
Amsterdam is also taking a multifaceted approach to flood adaptation, including pioneering work on floating real estate. The Schoonschip community is a sustainable floating neighbourhood built to rise and fall with river water levels.
Ho Chi Minh City faces a range of water-related challenges, including flooding, saltwater intrusion into the city’s water network and subsidence. The last is often exacerbated by excessive groundwater extraction, something the city has now restricted. Meanwhile, saltwater intrusion can worsen droughts and harm agriculture.
“In a global context, Ho Chi Minh City is one of the most exposed cities to climate change,” says Troy Griffiths, Deputy Managing Director of Savills Vietnam. “An extension of the Mekong Delta, it regularly suffers adverse flooding, both from tidal events and heavy monsoon rains. The Mekong Delta is known as Vietnam’s food bowl. Rice is a key crop. However, salt water intrusion and flooding mean yields are falling.
“Early trials of salt water-resistant rice varieties are ongoing. In addition, master planning has been a focus of the Vietnam government to ensure efficient allocation of resources to address infrastructure needs, specifically around flooding and flood mitigation.”
Heat
Urban centres around the world are seeing more severe and longer heatwaves, with devastating impacts. Over 70,000 excess deaths were recorded during the European heatwave of 2022. Against this, cities must act to protect the health of citizens and guarantee supplies of water and goods.
Aggressive air-conditioning, which is costly and environmentally harmful, is not a sustainable solution to excessive heat. A better one is district cooling, a system where water is collected and chilled at a centralised location and then piped into surrounding buildings to keep interiors chilled. In Dubai, this has achieved energy-efficiency index ratings between five and 10 times higher than conventional systems.
Paris has taken an innovative approach, prioritising the creation of “cool islands”: easily accessible city spaces that provide relief from vicious heat. These include temporary pools, misting zones, and specialised cool rooms. A connected project has increased the number of water fountains by more than 200 to 1,273 since 2023.
“These developments are necessary because Europe is warming faster than the global average,” says Elena Rivilla-Lutterkort, Savills Head of Sustainability in France. “Paris is working under an assumption that an average increase of +4°C is a likely scenario. As well as cool islands, the city has introduced a heatwave phone line aimed at supporting the elderly and vulnerable. Over 10,000 people have signed up to a service that calls people on the list and carries out welfare check-ins by phone during periods of extreme heat.”
But making Paris more heat resilient has not been without controversy. “The pace of adaptation is tricky, because it can be conflated with gentrification,” Rivilla-Lutterkort adds. “The creation of new green spaces has attracted wealthier households, which is changing real-estate pricing dynamics around better-adapted spaces.”
