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Perceptions of Climate Change and the Pricing of Disaster Risk in Commercial Real Estate

Authors:
C. Stace Sirmans
C. Stace Sirmans
C. Stace Sirmans
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G. Sirmans at Florida State University
G. Sirmans
Greg T. Smersh
Greg T. Smersh
Greg T. Smersh
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Daniel T. Winkler
Daniel T. Winkler
Daniel T. Winkler
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Abstract and Figures

This study investigates the relationship between natural disaster risk and capitalization rates (cap rates) in the U.S. commercial real estate market, focusing on the role of climate change beliefs in shaping this relationship. Utilizing a comprehensive dataset of over 4,800 single-tenant, net lease property transactions across the United States from 2014 to 2019, we combine property-level data with the Federal Emergency Management Agency (FEMA) National Risk Index and Yale Climate Opinions Map survey scores to examine how the pricing of disaster risk varies based on local climate change beliefs. Our findings suggest that higher disaster risk is associated with higher cap rates, with the effect being significantly more pronounced in areas with a stronger belief in climate change. We further explore the nuances in climate change beliefs, the role of political orientation, education, and age in shaping these beliefs, and the impact of recent exposure to natural disasters on the pricing of disaster risk. Our study contributes to the understanding of how natural disaster risk is incorporated into the pricing of commercial real estate and highlights the importance of considering behavioral and perceptual factors in the analysis of environmental risks and asset prices.
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Vol.:(0123456789)
The Journal of Real Estate Finance and Economics
https://doi.org/10.1007/s11146-025-10015-w
Perceptions ofClimate Change andthePricing ofDisaster
Risk inCommercial Real Estate
C.StaceSirmans1· G.StacySirmans2 · GregT.Smersh3· DanielT.Winkler4
Accepted: 13 March 2025
© The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature
2025
Abstract
This study investigates the relationship between natural disaster risk and capitali-
zation rates (cap rates) in the U.S. commercial real estate market, focusing on the
role of climate change beliefs in shaping this relationship. Utilizing a comprehensive
dataset of over 4,800 single-tenant, net lease property transactions across the United
States from 2014 to 2019, we combine property-level data with the Federal Emer-
gency Management Agency (FEMA) National Risk Index and Yale Climate Opin-
ions Map survey scores to examine how the pricing of disaster risk varies based on
local climate change beliefs. Our findings suggest that higher disaster risk is associ-
ated with higher cap rates, with the effect being significantly more pronounced in
areas with a stronger belief in climate change. We further explore the nuances in cli-
mate change beliefs, the role of political orientation, education, and age in shaping
these beliefs, and the impact of recent exposure to natural disasters on the pricing of
disaster risk. Our study contributes to the understanding of how natural disaster risk
is incorporated into the pricing of commercial real estate and highlights the impor-
tance of considering behavioral and perceptual factors in the analysis of environ-
mental risks and asset prices.
Keywords Commercial Real Estate· Cap Rates· Climate Change· Global
Warming· Natural Disasters
JEL Classification R3· G12· G40· Q54
“In the past year, people have seen the mounting physical toll of climate
change in fires, droughts, flooding and hurricanes… No issue ranks higher
than climate change on our clients’ lists of priorities. They ask us about it
nearly every day.”
– Larry Fink, CEO of Blackrock
Extended author information available on the last page of the article
Content courtesy of Springer Nature, terms of use apply. Rights reserved.
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