Impact of Climate Risks on Commercial & Personal Property Portfolio

The world's major economies and societies are at physical risk from rising global temperatures and more frequent and severe extreme weather occurrences. Climate change also threatens the United Arab Emirates, an international centre of luxury real estate, trade, and futuristic cityscapes. Even though the nation has achieved impressive progress in sustainability and innovation, commercial and residential real estate holdings are facing serious risks from the growing frequency and intensity of climate hazards including severe heat, rising sea levels, and water scarcity. At the same time, initiatives aimed at lowering carbon emissions also pose a risk to high-emission economies' climate transition.

Recognising Climate Risks in the UAE

Due to its location and climate, the UAE is especially susceptible to the following climate risks:

> Increasing Temperatures: The United Arab Emirates, which is already renowned for its intense heat, is seeing an increase in average temperatures as a result of global warming. Prolonged excessive heat can increase energy bills, strain building systems, and make outdoor spaces less liveable.

> Sea Level Rise: Rising sea levels pose a threat to coastal regions such as Sharjah, Abu Dhabi, and Dubai. Flooding and erosion pose a threat to the UAE's substantial expenditures in waterfront real estate, including well-known projects like Palm Jumeirah and Yas Island.

> Water Scarcity: The United Arab Emirates is mostly dependent on desalinated water, which is expensive and energy-intensive. Properties' liveability and value may be impacted by droughts or interruptions in the desalination system.

> Desertification and Dust Storms: Frequent dust storms and shifting sands can harm home exteriors, lower air quality, and detract from the appeal of outdoor spaces.

> Severe Storms and Rainfall: Although they are rare, intense rainstorms can cause flash floods in cities, causing damage to infrastructure and commercial interruptions.

Impact on the UAE's Real Estate Sector

> Impact on Building Infrastructure: Long-term exposure to excessive heat can deteriorate building materials, resulting in structural damage and a shorter lifespan.

> Health Risks: Excessive heat can have a negative impact on people's health, which could lower production and raise medical expenses.

> Energy Consumption: During the hottest summer months, there is a greater demand for cooling systems, which can put stress on the electrical grid and raise energy prices.

> Impact on Irrigation and Landscaping: Due to its dry climate, the UAE is heavily dependent on water for irrigation and landscaping. Water shortage may restrict the amount of water available for various uses, which could affect a property's value and aesthetic appeal.

> Effect on Construction and Maintenance: Insufficient water can make construction more difficult and raise the price of building supplies.

Impacts on Commercial Properties

- Higher Operating Expenses: For owners of commercial real estate, climate hazards result in increased operating expenses. Strong cooling systems are required in extreme heat, which raises energy usage. Similar to this, improved drainage systems, water barriers, and routine maintenance are necessary to reduce the risk of floods. Tenants may prioritize safer and more robust facilities, which could result in falling occupancy rates for properties that don't adjust to these demands.

- Vulnerable Properties' Devaluation: Low-lying seaside properties are particularly vulnerable to depreciation. Without substantial mitigation measures, developers and investors could be reluctant to commit to such areas, which would affect the assets' total market value.

- Risk management and Insurance: It is anticipated that insurance rates will increase for business premises located in high-risk zones. Without making investments in climate adaptation measures like flood-proofing and heat-resistant materials, property owners may find it more difficult to obtain full coverage.

- Interruptions to Business Processes: Extreme heat waves or floods are examples of climate disasters that can interfere with company operations. Temporary closures of offices, retail stores, and industrial facilities could result in lower tenant satisfaction and revenue loss.

- Changes in Investing Patterns: When assessing commercial assets, investors are increasingly taking climate risks into account. Green-certified structures and developments with climate resilience measures are becoming more and more in demand. The appeal of buildings with water-saving features, renewable energy integration, and energy-efficient designs is growing.

Impacts on Personal Properties

- Property Damage and Upkeep: Due to wear and tear brought on by the climate, personal property owners must pay more for repairs and upkeep. Homes by the coast are more vulnerable to water damage from sea spray or flooding.

- Increasing Utility Prices: The cost of cooling houses during protracted heat waves is rising. As homeowners look to reduce these expenses, energy-efficient homes with solar panels and smart cooling systems are becoming more and more popular.

- Insurance Difficulties: Costs for home insurance are probably going to increase, especially for homes in high-risk neighbourhoods. Certain owners can have trouble getting coverage, which leaves them open to monetary damages.

- Changes in Demand: Buyer choices are changing due to climate issues. Properties outside of coastal areas that are vulnerable to flooding as well as developments that put sustainability and resilience first are gaining popularity.

- Effect on Liveability: Dust storms and high temperatures can make it harder to live outside, which lowers a neighbourhood's allure. In response, developers are adding climate-controlled settings, green areas, and shaded walkways to their new projects.

Climate Transition in the UAE

Through a wide range of programs, the UAE government is proactively addressing climate concerns. By coordinating property development and urban planning with the Sustainable Development Goals, the country prioritizes green infrastructure, water conservation, and renewable energy.

To lessen the consequences of environmental issues, major cities are putting climate resilience measures into place, such as seawalls, sophisticated flood control systems, and heat-resilient urban designs. Developers are increasingly required by regulatory frameworks to incorporate climate resilience, water-saving technologies, and energy efficiency into their constructions.

Additionally, the UAE's goal of reaching net-zero emissions by 2050 demonstrates its commitment to encouraging environmentally friendly building methods and lowering carbon footprints in all industries.

Possibilities for Stakeholders

Despite the difficulties they represent, climate concerns offer the real estate industry tremendous potential for innovation and expansion.

By using eco-friendly materials, smart technologies, and renewable energy systems, developers can capitalize on the rising demand for sustainable real estate and propel the green development movement.

By developing customized policies that cover certain climatic hazards, such as flood damage or heat-related repairs, insurers can innovate and provide property owners with an additional degree of security. The industry's approach to climate resilience is changing as a result of the emergence of climate-focused PropTech, which makes real-time monitoring, predictive analytics, and effective energy management possible.

While education programs can increase awareness among investors and property owners, creating a demand for sustainable solutions and proactive planning, public-private collaborations can further speed up large-scale adoption efforts. When combined, these tactics put the real estate industry in a position to transform climate-related obstacles into chances for resilience and long-term growth.

Conclusion

For the UAE real estate market, climate concerns are an indisputable fact. The difficulties affecting both personal and business property holdings necessitate prompt and consistent response.

Proactive actions, creative fixes, and strong legislative frameworks, however, can turn these dangers into chances for development and adaptability. In addition to protecting its real estate industry from the uncertainties of a changing climate, the UAE can maintain its position as a global leader in urban development by placing a high priority on sustainability and climate adaptation.

Governmental organisations, developers, investors, and citizens all must work together and adopt a progressive mindset. The ability of the real estate market in the United Arab Emirates to adjust to and prosper in a world impacted by climate change will determine its destiny.