Extreme Heat and Sustainable Real Estate

Extreme heat waves diminish workers’ productivity, impair cognitive performance, and can lead to economic losses. Unlike acute climate disasters that are event-driven, chronic risks like heat waves are widespread and enduring, making it challenging to identify exogenous variation. The susceptibility of commercial properties to heat stress remains insufficiently explored. Furthermore, green buildings, recognized for increasing indoor comfort and reducing energy consumption, may offer a mitigating effect against extreme heat. However, limited studies have examined the differential impact of climate-related shocks on green versus non-green buildings. This research aims to fill this gap by examining how location-specific heat exposure impacts commercial property value across both green and non-green categories. Our analysis employs granular data on temperature, energy consumption, sustainable features, and transaction records. Leveraging ground-level temperature data from 40 weather stations and 30-meter resolution rasters, particularly for Hong Kong, we construct a high-resolution dataset of location-various temperature exposure across the city. We measure abnormal temperature exposure at each property’s location and apply a difference-in-difference method to quantify the treatment effect of heat stress. This study contributes to understanding chronic climate risk in commercial real estate and the role of sustainability in asset valuation.