Resilience: Concern of real estate investors???

In an Urban Land Institute Magazine, Richard Barkham wrote: “Real estate investors often worry that their portfolios might be pummeled by economic factors such as rising interest rates. But there are plenty of other concerns—rising sea levels, earthquakes, overpopulation, social inequity, pollution, crime, and poorly functioning government. Globalization, climate change, and aging populations are creating dramatic changes at the country, city, and neighborhood level. These changes, in turn, are likely to have a profound impact on the built environment……The traditional methods of assessing real estate investment risk—such as standard deviation of returns, projected vacancy rate, and forecast rental growth—fall short in a world in which the basic patterns of the last two centuries are undergoing drastic transformation.”

The global property group, Grosvenor, in order to better plan and manage its global portfolio, undertook a three-year study, titled Resilient Cities, seeking new ways of measuring cities’ long-term resilience and identifying the world’s most resilient cities. “Resilience” is defined as the ability of cities to continue to function as centers of production, human habitation, and cultural development despite the challenges posed by climate change, population growth, declining resource supply, and other paradigm shifts.

The study examined and ranked 50 of the world’s most important cities. Although these cities account for only seven percent of the world’s population, they represent the major focus of most global real estate investment and consume the lion’s share of the world’s resources. Thus, the fact that so many struggle to meet basic levels of resilience indicates how unprepared the rest of the world is to face the next century’s major challenges.

Applicability in the Philippines

Climate change is probably not yet a significant risk factor in valuing real property in the urban areas, except those that are prone to repeated flooding. As the effects of climate change -- sea level rise inundating coastal areas and prime seaside property, stronger typhoons, more severe and widespread flooding, droughts, etc. -- are more strongly felt and as stricter zoning and building rules and regulations are adopted and enforced, there is a greater likelihood that property values will change. Property damage from extreme weather events, e.g., super-typhoons, made worse by a changing climate will continue to be a major concern for the real estate and insurance markets. Imagine Typhoon Yolanda striking Metro Manila rather than central Philippines. The damage to property will be astronomical and the property market will be drastically affected. There is no reason why such a strong typhoon will spare Metro Manila sometime in the future.  Then there is the increasing possibility of a major earthquake. All these risks underscore the need to make our cities more resilient. 

A word about insurance… it is a fact that insurance premiums in high-risk areas are definitely higher than other parts of the region. The Philippines has been declared the most vulnerable to all kinds of natural disasters.  The economic cost is devastating.  In the Yolanda affected areas, 90 percent of the damage was business related.  The insurance loss was about $1.5 billion and total loss was estimated at $7 billion.  In the context of resiliency, business common sense dictates that commercial establishments should avoid construction in coastal areas. Caution should also be taken particularly in a reclaimed area where insurance companies tend to increase the rates even more.  No matter how sturdy the structure, earthquakes in reclamation areas pose the greatest danger.

Climate change will also accelerate rural-to-urban migration in the country as drought and erratic rainfall lead to crop failures. These will most likely increase the number of informal settlers in the cities, but it will also increase the demand for low-cost housing and other social services.  

I have not found a study showing the effects of climate change on real estate values in the Philippines. Perhaps a real estate developer or insurance company should commission a study on Resilient Cities and Municipalities in the Philippines. Moreover, I hope architects and the construction industry will take note of the more stringent requirements of resiliency. 

Conference: Partnerships for Disaster and Climate Resilience

Our project will require partnerships with the private sector, NGOs, the Church and multilateral organizations. We are pleased to announce that San Miguel Corporation has pledged to be a partner for the envisioned period of the project.

On July 9-10, the Carlos P. Romulo Foundation for Peace and Development, the Zuellig Family Foundation and the Manila Observatory in cooperation with PLDT, AIG Philippines Insurance and Federal Phoenix Assurance will host a conference on resilience. Aware that one conference cannot achieve our objectives, it is our intention to have a three year program of workshops and pilot programs in selected municipalities. 

The private sector, in particular has become increasingly involved in initiatives to make businesses more resilient to disasters and climate change and to contribute to national efforts at building a resilient society. While work is already underway in this regard, much more needs to be done.

It is in this context that the conference hosts will launch a series of events over the next three years to initiate and stimulate a continuing exchange of ideas and information on how best to build a resilient Philippine society. Beyond better disaster preparedness, risk reduction and climate change adaptation, the conference will give particular attention to the innovative and transformative changes needed to build resilience. The conference is expected to conclude with a statement highlighting the urgency of building a resilient society and proposing a set of concrete follow up measures to help achieve it. 

The conference will be held at the main lounge of the Manila Polo Club. Registration will start at 3:00 pm on July 9.  For those interested to attend, please e-mail Melanie Reyes at (reyes@pfgc.ph).