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Commercial real estate has typically been valued through three fundamentals – location, market demand, and tenant profile. There is a shift in the evaluation process as investors are beginning to evaluate buildings based on their ability to withstand significant moments of disruption, whether environmental, operational, or financial, and still deliver stable, long-term returns.
This shift has led to the notion of resilience dividends. And right now, it is very close to losing its urban myth status as investors are beginning to show a preference for truly resilient buildings.
Resilience as a Core Investment Metric
In a market where volatility is the new norm, resilience is becoming a must-have and a defining characteristic of high-performing portfolios. Climate-related disasters, from floods to wildfires, are growing in both frequency and cost. Insurance premiums are climbing, sometimes doubling in “high-risk” markets. All levels of government and financial institutions are rolling out disclosure requirements that require owners to quantify and report their resilience measures.
Investors and lenders are now being forced to re-evaluate their models. Properties that can prove their capacity to absorb shocks and with actionable recovery plans are getting higher valuations and more favorable financing terms. A resilient building is not only safer for its tenants, but also safer for its investors.
Resilience Gets An “A” For Performance
Emerging data supports the idea of a resilience dividend. Studies show that every $1 spent on risk mitigation saves between $4 and $13 in future losses. For institutional investors, the math is simple, as a sometimes-modest capital upgrade today can prevent catastrophic losses down the road.
At the building level, data is beginning to support that resilient buildings outperform in tangible ways:
Tenant and Lease Stability: Tenants are more likely to re-up with buildings that have minimal disruptions, which leads to reduced vacancy risk and potentially higher rents.
Insurance Advantages: This is anecdotal, but we are hearing insurers are starting to reward resilient assets with better terms, which will positively impact operating costs.
Valuation Growth: Reputationally, resilient properties are increasingly viewed as lower-risk investments, eventually boosting their market value.
What is becoming clear is that investing in resilience and risk mitigation has a bigger payback than simply avoiding losses. Buildings that demonstrate their ability to recover quickly from extreme events quickly develop a reputation for reliability, attracting tenants and investors who equate resilience with long-term confidence.
Shifting Investor Expectations
With the uncertainty that surrounds the global economy, investors are looking at aligning with what are becoming the new risk and resilience benchmarks. This is also becoming a necessary benchmark with cross-border investors scrutinizing not just sustainability credentials but also resilience metrics – flood defenses, backup power capacity, smart monitoring systems, and emergency response protocols.
Investors and insurers have begun to actively tighten underwriting standards. For example, some insurers now require climate risk assessments before issuing policies. Lenders have also begun to incorporate resilience into their risk-adjusted returns, offering more favorable rates to buildings with strong mitigation strategies in place.
In short, resilience is becoming part of the financial DNA of CRE. Those who ignore it face higher costs of capital, restricted insurance options, and lower tenant retention.
What makes resilience more appealing today is its ability to cover two needs for building owners and managers – regulatory and operational essentials and a competitive differentiator. Increasingly, it is becoming clear that buildings that proactively assess and address risk stay ahead of compliance curves or are more cost-effectively updated. At the same time, they let both investors and tenants know they are future proofed.
Frameworks such as BOMA BEST are proving invaluable here. By guiding building owners through a structured assessment of operational, regulatory, and environmental risks, certification programs transform resilience from a buzzword into a documented, verifiable attribute. For investors, this means greater transparency. For owners, it means tangible pathways to improve asset performance.
Resilience is Becoming the New Green
The resilience dividend is not just an urban myth. Buildings that can demonstrate that they are prepared to recover from things like climate catastrophe with minimal disruption are starting to show higher occupancy rates and can secure more favourable financing and insurance rates.
For asset managers, resilience is now becoming an investment strategy. For investors, resilient assets offer stability in what is an unpredictable market. And for tenants, resilient buildings deliver safety, reliability, and minimal business disruption.
