Climate Transition Risk in the Real Estate Sector: Does Decarbonization-Driven Regulation Affect REIT Valuation?

Unofficial AI-generated summary based on the public title and abstract. Not an official translation.

🔬研究者:Offers a replicable event-study framework for analyzing transition risk in real estate, highlighting the challenge of isolating regulatory impacts.

🏢実務担当者:REIT managers and real estate investors should monitor regulatory milestones closely, as enforcement dates can trigger valuation adjustments.

🏛政策担当者:Suggests that early policy signals may not immediately affect asset prices; enforcement and penalty phases are crucial for market impact.

Climate transition risk is emerging as a critical determinant of value in real estate finance as cities adopt increasingly stringent decarbonization policies, adding to the pressure of physical risk. Regulations impacting the construction sector, which represents 40% of global carbon emissions, have the potential to impact energy and commodities markets. New York City's Local Law 97 (LL97), which imposes binding emissions caps and financial penalties on large buildings, offers a case to examine how capital markets respond to building-sector climate regulation. This paper investigates whether and how U.S. equity Real Estate Investment Trusts (REITs) with exposure to New York City assets respond to climate transition policies like LL97. Using a standard event study framework, the analysis examines abnormal returns around two key milestones: the policy's approval as part of the Climate Mobilization Act in April 2019 and the onset of its enforcement phase in January 2024. Results show that the initial announcement generated statistically insignificant cumulative abnormal returns, suggesting that investors did not price LL97's long-term horizon implications at the time of the vote. By contrast, the enforcement milestone coincided with economically meaningful negative abnormal returns across most sampled REITs, particularly those with substantial New York City office exposure, although these effects are not statistically significant and can be attributed to broader sectoral stress. Cross-sectional tests reveal no significant differences between highly and moderately exposed groups. Overall, while isolating the impact of transition risk alone is empirically challenging, the findings suggest that climate-related transition risk is priced gradually, potentially non-material in the short term and can become more salient as implementation approaches.

• semanticscholar https://doi.org/10.2139/ssrn.6733523first seen 2026-06-29 08:25:50