WTW | Building resilience against emerging risks in Asian realty sector
April 30 2024
WTW’s Ben MacCarthy, head of real estate, hospitality & leisure, Asia, and Jennifer Tiang, cyber leader, Asia, discuss the real estate industry’s sectoral risk landscape and the emerging role of proptech.
What are some of the key risk concerns that could hamper the recovery of the real estate businesses in Asia Pacific?
From the WTW Global Real Estate Risk Outlook 2024 report, we found several risks that can impact real estate businesses in Asia. Out of that, two risks are of most concern – one at a micro level and another at a macro level.
Energy transition risk is of concern due to the unknown impact it can have on the value and performance of assets, especially for commercial and industrial real estate businesses. Energy was among the global trends with the greatest impact on risks as 80% of the asset and risk managers were concerned with the availability and cost of energy.
Investment strategies are partly influenced by sustainability where managers may need to retrofit existing buildings to become greener or adhere to new government regulations to improve energy efficiency (such as by installing solar panels).
They also need to be up to date on the technical advancements and emerging renewable energy sources and the shifting preferences of tenants who want to rent green buildings. With this recognition of a need to transition, asset managers will be able to ensure the long-term viability and resilience of their portfolios.
Geopolitics also poses great risks to real estate organisations. Sudden changes in policy, trade tensions and political instability will all impact the demand and operating costs, as well as undermine optimism about future returns for the real estate business and investors.
Furthermore, there are risks such as military conflicts and terrorist attacks that can create uncertainty and impact the overall security of assets. It is therefore important for real estate firms to stay vigilant across both monetary and physical risks when operating in different continents, particularly those that are experiencing heightened geopolitical tensions.
How exposed is the real estate sector to emerging risks such as cyber security and business interruption?
Our report revealed that cyber security is a mounting worry, with 72% of the respondents considering it to be one of their greatest insurable risks. This reflects the awareness that the real estate sector is indeed exposed to cyber risk and non-physical business interruption events (such as ransomware attacks).
While it may be convenient to minimise cyber risks facing the real estate sector, as they tend not to carry high volumes of personally identifiable information and, therefore, are not a target of cyber threats, is perhaps a rather short-sighted and outdated conceptual understanding of cyber risk facing businesses today.
Due to the absence of regulations in the cyber security space, there is a general lag in maturity amidst real estate companies, which makes them ripe targets for threat actors.
This, combined with the heavy reliance on technology and the continued digitalisation of management processes and building asset systems, a strong “business case” for threat actors targeting deep pockets where business interruption will be problematic.
Commercial real estate owners and investors continue to invest in highly sophisticated technology solutions. We now have “smart” buildings, which offer many benefits and often reduce overall operating costs. However, the flip side to these benefits is that it does open up systems to new vulnerabilities – a new world of risk.
Undoubtedly, the fear of insecure systems cannot inhibit innovation – particularly in today’s hyper-competitive environment. However, the benefits must be weighed against the risks. Risks must be put through due mitigation and risk transfer treatments. The questions to be asked include: Are we investing enough to be secure? Are we insured in case our defences fail?
How can proptech and smart buildings help companies build risk resilience and help mitigation strategies?
Proptech and smart buildings, as with all things underpinned by technology, are a double-edged sword. They can help build risk resilience and mitigate the impact of cyber threats in many ways. For example, the safety and security of occupants can be more intelligently overseen by smart buildings that incorporate advanced security measures such as biometric access control, fire detection systems and surveillance systems.
AI-based algorithms can detect anomalies and potential threats, improving overall safety. However, as mentioned above, the flip side is that these smart systems open up new vulnerabilities and risks to business operations.
Key to risk managers in the real estate sector is that risk-benefit trade-offs are properly explored – with the cost and impact of vulnerabilities being exploited are understood well by all key stakeholders. Involving the security teams and business continuity teams (which includes a security colleague) is key to this process.
What can business do to adapt to evolving trends in ESG and climate regulations?
We highlighted earlier that energy transition risk has shown to be the biggest risk facing real estate risk and asset managers now. Yet, this trend is one of many with how ESG and climate regulations are evolving. What we have discussed and found with real estate businesses is that they plan to:
- Implement sustainable building and development practices in current and future assets. This includes energy-efficient building design, green construction materials and renewable sources of energy. All of which reduce carbon footprint and operating costs.
- Conduct ESG performance assessments and reporting to ensure and demonstrate transparency and accountability to investors and stakeholders.
- Integrate climate risk analysis into investment decisions that can mitigate financial and insurance impacts of extreme weather events, as well as regulatory changes.
These are some measures that real estate businesses can look to adopt to ensure that they are one step ahead of any evolving and emerging trends in ESG and climate regulations.
 |
Ben MacCarthy
Head of Casualty, Asia at WTW & Head of Real Estate, Hospitality & Leisure, Asia Email: [email protected] |
 |
Jennifer Tiang
Regional Head of Cyber Practice, Asia Email: [email protected] |
-
BHSI | Managing non-Asian exposure in long-tail lines
While US-exposed business can look attractive to Asian carriers, managing the volatility around the long-term results and the ability to model those losses are crucial, say BHSI’s Marc Breuil and Marcus Portbury.
-
Sedgwick | To Handle CAT Claims Well, Multi-Step Preparation is Key
When it comes to risk, it’s not a matter of “if” it’s a matter of “when” an event will occur.
-
HSBC Asset Management | Is it time to relook at Asian currency bonds?
With diversification and performance high on investors’ agendas, it seems a good time for global portfolios to revive allocations in Asian local currency bonds – including Hong Kong dollar (HKD) bonds.
-
PineBridge Investments | Why Asian insurers are exploring private credit and CLOs
The recent rollout of risk-based capital regimes across Asia calls for a closer alignment between insurers’ assets and liabilities. We explore potential ways to maintain a healthy investment yield and robust returns on regulatory capital.