New ESG research publication from Swiss Life Asset Managers shows impact of natural hazards on rents

As part of its new research publication “Thematic ESG Research,” Swiss Life Asset Managers in collaboration with the University of Cambridge and Wüest Partner AG examined around 18 000 anonymised data points on net residential rents in Switzerland.

The study focused on the impact of ten natural hazards, including floods, mudflows, landslides, rockfalls, avalanches, hail, storms and heat on rental prices. It also examined the impact of Minergie © ratings on rents. This is one of the most comprehensive studies carried out in the context of the impact of natural hazards on rents, including sustainable building standards and labels.

Both increased natural hazard risk and the energy efficiency certification of buildings have an impact on the rental prices of residential real estate. The study shows that apartments in Switzerland that are exposed to the risk of slope mudslides or frequent storms have significantly lower rents. Flood and surface runoff risks result in lower rents in Switzerland by 1.4% and 3.5% respectively, however, only outside the urban areas. Within urban areas there is no clear pattern. However, the number of average heat days in an environment is associated with higher rents in Switzerland, which could be partly due to heat island effects¹ and further location effects of urban locations. The results on the impact on rents of avalanches, debris flows, landslides, hail and rockfall are unclear.

Minergie-certified medium-standard buildings are associated with significantly higher rents of 4.1% on average.

“For real estate investors, natural hazards can not only result in potential losses in value due to any physical damage, but also lower rental income. Certification of buildings to environmental standards can help mitigate potential rent losses,” says Ante Busic, ESG Research Studies & Innovation Manager at Swiss Life Asset Managers.

“Directly held real estate comprises physical and tangible assets, and natural hazards can affect cash flows and the value of related investments. International findings show how these risks are assessed. However, there are still gaps in these findings. Our study tries to draw a comprehensive picture of the assessment of natural hazards and risk mitigation via certification for energy efficiency. The findings underscore the strategic value of these considerations in real estate investment decisions,” says Prof Franz Fuerst, Real Estate & Urban Economics, at the University of Cambridge.

_{¹An urban heat island (UHI) is created in urban areas where temperatures are higher than in the surrounding rural areas.}