Physical and climate change-related risk identification in valuation practice: an Australian perspective

Abstract

PurposeThe purpose of this research is to investigate Australian property valuers' identification and consideration of physical risks to properties in valuation practice. The research further explores valuers' considerations of climate change-related risks.Design/methodology/approachThe research approach comprised an online survey of Australian valuers who were members of the Australian Property Institute. The online survey included structured and unstructured questions to explore types and extent of risk investigations in valuation practice.FindingsThe analysis reflects that while valuers easily identified and engaged with physical risks, there is a lack of understanding of, and engagement with, climate change risks. This supports the need for better information sources and guidance to inform valuers of climate change risks per se, as well as the development of specific mechanisms for consideration of such risks to be included in valuation processes, practices and reports.Research limitations/implicationsThe research is limited by the small sample size achieved due to the timing of the survey deployment, which occurred during the first wave of COVID-19 lockdowns in Australia. Thus, the findings are not necessarily representative of the Australian valuation profession, but they do provide indications of current approaches to risk identification in practice and the need for more guidance in relation to climate change risks.Practical implicationsThis research identifies that more support, guidance, information and tools, as well as awareness-raising, are required to enable valuers to accurately identify all risks affecting a property.Originality/valueThe research provides a snapshot of current understandings of physical risk identification in valuation practice. As investors and other organisations integrate and build up their analysis of climate risks to their portfolios and organisations, this research indicates that valuers also need to be aware of changing market assessment of physical and climate risks associated with property for consideration in valuation.

Climate risks and their implications for commercial property valuations

“…Similar guidance is provided by other bodies such as the Australian Property Institute (Warren-Myers and Cradduck, 2021).…”

“…(2019) found no consistent approach in how professionals in Australia, China, Germany, United Kingdom and USA reflected flood risk in their advice. Warren-Myers and Cradduck (2021) concluded that inadequate identification, consideration and reporting of climate change risks could be attributed to a lack of guidance from professional bodies as to what is required, as well as inadequate data sources with which to evaluate the risks. Lamond et al.…”

“…While valuers should reflect markets, not lead them, they should be aware of sustainability features and the implications these could have on property values in the short, medium and longer term. (RICS, 2021a, p. 129) Similar guidance is provided by other bodies such as the Australian Property Institute (Warren-Myers and Cradduck, 2021).…”

The increasing importance of environmental sustainability in global real estate investment markets

“…Craddock et al. , 2020; Warren-Myers and Craddock, 2022; Warren-Myers et al. , 2020 a, b), energy efficiency and the effectiveness of Energy Performance Certificates (e.g.…”

“…More recent environmental sustainability and real estate research has added significantly to the depth of this research around critical issues such as climate change risk issues in real estate/valuation (e.g. Craddock et al, 2020;Warren-Myers and Craddock, 2022;Warren-Myers et al, 2020 a, b), energy efficiency and the effectiveness of Energy Performance Certificates (e.g. Fuerst et al, 2011a, b, c), decarbonisation frameworks/ strategies (e.g.…”