Flooding’s Rising Threat to Real Estate

Recent events in Valencia, Spain, have again highlighted the devastating impact of flooding, as well as the unescapable fact that extreme-weather events, often characterized by more intense and unpredictable rainfall patterns, are becoming more common — exacerbating the risks associated with pluvial flooding (from extreme rainfall) in particular. Properties located in the flood-affected areas of Valencia were ranked in the top quartile of current and future risk from pluvial floods in the MSCI Climate Value-at-Risk model, and combined with unexpected, heavy rainfall, the area experienced a major economic and humanitarian crisis.¹

As opposed to coastal flooding (from high tidal water and storm surges) or fluvial flooding (from rivers overflowing their banks), assets don’t need to be near rivers or coasts to be affected by pluvial flooding, which can affect broader expanses of urban areas, leading to more widespread damage. Given the extensive and increasing exposure, it is important for investors to assess and understand the potential asset- and portfolio-level financial impacts of all three flood types.

We analyzed a global sample of more than 50,000 property assets to estimate what percentage of properties were exposed to which type of flooding, and to what extent, under a 3°C global-warming scenario. While individual assets can be more severely affected by fluvial and coastal flooding, the impact is often limited to specific floodplains or coastal areas. Our analysis indicates that 1 in 10 properties (9.6%) faced at least a moderate risk of damage due to pluvial flooding, compared to 1 in 29 for coastal flooding and 1 in 91 for fluvial flooding.²