The Senate passed the Inflation Reduction Act of 2022 in August this year. This bill aims to reduce U.S. greenhouse gas emissions by as much as 40 percent by the end of 2030. That said, it can certainly transform the environment but many experts believe that a lot depends on how much the local and state governments work with the nonprofit and private sectors to use federal investments as a catalyst.
A large chunk has been set aside for the new law directed toward the manufacturing of clean energy. There is another segment for customers in the form of electric cars, tax refunds, and home retrofits. Besides that, there is a large part aimed at construction and real estate since these two industries are the biggest emitters of greenhouse gasses. So, the commercial real estate industry will certainly be affected by the act. Let’s see how.
What Effect Does Climate Change Have on Commercial Real Estate Investing?
The impact of climate change has led to a rise in climate risks and the recent severity of natural disasters is a result of climate change which has increased over the past decade. Natural disasters also bring a lot of damage and this damage can be so massive that people and places can never recover from them. The impact of climate change cuts across all sectors and industries and commercial real estate is not left out.
There is a consistent rise in the temperature of the planet which is triggering climate-related incidents and has brought dangerous levels of rain, flood, and wind. However, a temperature rise can also have a direct impact on the costs of managing your rental property. With more people relying on electricity for fans and air conditioners to stay cool, there is a higher burden on the electrical grid, water consumption, and city resources. If you are a property owner, you will have to pay a higher cost for these utilities along with the tenants. With a rise in demand, the cost becomes expensive and we are already seeing the results today.
Studies have shown a high frequency of hurricanes across the North Atlantic and while climatologists remain at odds as to why this is happening, the fact is that there is a rise in the number of Atlantic hurricanes in the past 20 years. This has led to a higher damage risk to properties. Locations where wildfires have grown over the last few years, have seen more destruction to the property with higher consistency and intensity. This has been troubling the western part of the United States where large wildfires have affected the land and property. Hence, the maintenance cost of the property in such areas is rising due to the frequent repair bills, and higher insurance premiums. But the rent increase and real estate prices have remained unaffected by the impact.
Damage to property
We have seen significant property damage due to weather-related conditions and the expenses are only going to rise over the course of the year as weather-related calamities become incessant. All the properties located in such areas begin to lose their appeal and tenants are not willing to live in weather-plagued neighborhoods which are under constant threat of another disaster. If you try to sell a property in such an area, it could mean a loss or low profit. Home prices have seen a shift due to the climate-related impacts and real estate prices in such areas are dropping.
The Inflation Reduction Act Incentivises New Manufacturing and Manufacturing Upgrades
The Inflation Reduction act incentives many building retrofits that can help reduce the emissions of existing buildings. They also seek to galvanize innovation and help implement low-carbon building materials, enhanced sustainable design methods, and better use of renewable energy. The purpose behind it is that the new technologies will address three ways in which buildings produce emissions- energy consumption, gas, and embodied carbon in building materials.
The Climate change bill aims to support clean energy manufacturing in the United States which includes the grants extended to convert the existing manufacturing facilities to clean factories and loans for new clean vehicle factories. This bill also provides an investment tax credit that helps build clean technology manufacturing facilities and extends the consumer tax credit for lower and middle-income individuals to help buy used clean vehicles, and a tax credit to buy new clean vehicles.
These climate regulations help increase the value of your commercial property and can benefit you in the long term. Whenever you make the property appealing to businesses, you will always have a facility that is high in demand. Climate change has more influence than ever before but you should never ignore the fact that the demand for commercial properties is always growing and the investment will continue to pay off.
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