Investment Rating - The report does not explicitly provide an investment rating for the commercial real estate (CRE) market in relation to climate risks. Core Insights - The study highlights a significant increase in the pricing penalty applied to buildings exposed to physical climate risks from 2007 to 2023, indicating that investors are increasingly accounting for these risks in their pricing strategies [6][8][19] - The findings suggest that while the pricing of transition risks has also increased, it appears to be affecting market liquidity, particularly for older buildings, which may be at risk of becoming "stranded assets" [6][8][19] - The report emphasizes the importance of gradual adjustments in pricing to mitigate potential financial stability risks associated with sudden market shifts due to climate events [10][21][40] Summary by Sections Introduction - The report discusses the central role of real estate markets in the economy and their exposure to climate change risks, which are expected to intensify in the coming years [18][19] Physical Risk - The analysis reveals significant heterogeneity in physical risk exposure across euro area office markets, with southern European markets showing higher risk levels compared to northern Europe [12][66] - The average discount applied to high-risk buildings has increased by 24 percentage points from 2007 to 2022, indicating a growing awareness and pricing of physical climate risks by investors [25][26] Transition Risk - The report identifies that real estate is a major carbon emitter, with one-third of the EU's energy-related greenhouse gas emissions attributed to buildings, creating direct links between climate policies and real estate markets [30][35] - The analysis shows a significant increase in the premium for younger buildings, with an 18 percentage point increase over the 2007-2023 period, reflecting the market's response to energy efficiency concerns [31][32] Market Liquidity - Despite the increased pricing of climate risks, the share of high-risk buildings in transactions has remained stable, suggesting that the market has not yet experienced significant liquidity issues for these assets [29][69] - The report indicates a shift in market activity away from older buildings from 2018 onwards, suggesting that concerns regarding transition risks are beginning to impact liquidity [32][33] Policy Implications - The findings underline the necessity for macro-prudential tools to enhance the financial system's resilience to climate risks and to address data gaps related to energy efficiency in the building stock [33][40]