Flood risk management for commercial real estate

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Since the 1970s, insured losses from weather-related catastrophes such as floods, droughts and thunderstorms have increased 14 times. With more than one-third of the world’s land prone to flooding, more frequent and intense natural disasters have brought with them an uncompromising set of negative impacts on business continuity, physical building assets, and, ultimately, asset values.

Innovation in flood risk management has not kept pace with the increasing frequency of such natural disasters. Adoption of systematic flood risk assessment by real estate investors and building occupiers has been slow, the availability of assessment tools has been low, and detailed and up-to-date flood risk information for river and coastal flooding—as well as surface water, groundwater and sewer system flooding—has been limited.

Therefore, a strong need exists to protect real estate physical assets and asset value in the short- and long-term and update business continuity to better account for flooding events. Flood risk management and resilience of commercial real estate and occupier business activities can be improved through better assessment of building location and design, infrastructure and business continuity plans.

Asset owners and building occupiers can introduce more systematic flood hazard assessments through the implementation of flood mitigation features, evaluation of emergency plans and organization’s readiness and recovery plans. The following are key steps to better flood risk management:

  • Establish a flood threat profile for the asset, the location of current flood hazard zones based on flood risk mapping and updated flood hazard forecasts; analysis of indirect risks such as power supply and infrastructure failures, collection of advice from statutory bodies.
  • Evaluate mitigation features and procedures helping to reduce flood threats; i.e. building design that provides protection against flood waters, the installation of back-flow valves in building plumbing and drainage systems, elevated podiums for parking spaces to protect vehicles from flood damage, locating critical infrastructure away from areas prone to flooding.
  • Analyze written plans for emergency procedures in case of flood warnings or actual flooding.
  • Evaluate readiness to activate plans.
  • Assess rapid recovery protocols to ensure a return to “business as usual”

JLL’s Building Emergency Management Assessment (BEMA) methodology is a best practice assessment – available in the USA and Canada – that covers natural, human and technical hazards. This holistic assessment scheme improves the understanding of flood hazards, reduces vulnerability to flood risk and helps structure the plans for business emergency procedures. It also prompts the implementation of building and equipment features for existing assets and business continuity planning to reduce risk of business interruption for occupiers. Flood-resilient building design is becoming more necessary in providing protection against flooding. Business continuity planning advice is readily available in all major markets spanning supply chains to core operational processes to critical infrastructure.

Detailed and current flood threat profiles for buildings help identify probabilities and more precise locations of floods potentially damaging buildings or interrupting business operations. Through richer details, an in-depth assessment allows owners and occupiers to devise mitigation plans and business continuity procedures that reduce vulnerability and damage in case of flooding, and provide better protection against water ingress and related damage to buildings, which, in turn, safeguard rental income and value of the real estate asset.

To overcome existing roadblocks to better flood risk management, the real estate industry needs to build capacity for in-house expertise on climate change and extreme weather-related risks on real estate asset and portfolios. It also needs to encourage local and national authorities to establish and provide detailed and current flood risk information and updates to existing flood maps. Investors should review their flood risk assessments annually where high risks have been identified in the past, and plan to improve resilience of their real estate portfolios as necessary. Asset owners should be actively encouraged to make enhanced flood due diligence assessments for new investments that have high flood exposure.

Through these activities and assessments, asset owners and building occupiers can protect the value of their real estate from future flood risk.

About the author:

Franz Jenowein is a director within JLL’s Global Research team. He is responsible for its sustainable real estate research program publishing analyses on Eco-cities, climate change, flood risk, resilient cities, smart buildings, workplace health and productivity, green districts and sustainability transparency. Franz has a wide experience in carbon management, operational building energy and carbon performance benchmarking and energy efficiency management across European and global real estate investor and occupier portfolios.

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