LONDON Climate change is a growing risk to older properties and southern UK cities, including London, and should inform the decision-making of property investors, one of Britain's biggest pension fund managers said on Friday.
In a joint study with University College London (UCL), Hermes said cities such as Southampton, Bristol and Cardiff, and the entire Thames estuary were most at risk to flooding, storm damage and subsidence through drought.
More northern ports such as Newcastle, Liverpool, Edinburgh, and Belfast were less exposed, it said.
Hermes is wholly owned by BT's pension fund. It manages the retirement savings of Britain's mail and telecommunications workers and has 12 billion pounds ($23.8 billion) of real estate under management.
A spokeswoman for Hermes said the company's property investment program had started last year to consider environmental concerns such as flood risk. But it was finding it a challenge on some existing investments, she said, without specifying.
"It's relatively easy to inform our new acquisitions," she said. "The biggest challenge is in re-underwriting our existing portfolio."
Location was not the only environmental consideration for real estate investors.
According to the Hermes/UCL report, older buildings -- mainly residential and high street shops -- were more vulnerable to the risk of subsidence as temperatures rose because they probably had shallower foundations, the report said.
London was especially vulnerable, not only because it was built on clay soil, but also because around 6 in 10 of its dwellings and retail properties were built before World War II, compared with a national average of less than 4 in 10, it said.
The report cited studies which showed subsidence was a growing problem in the UK, resulting in about 400 million pounds ($793.5 million) of private insurance claims annually.
London also faced the greatest increase in driving winter rain, which would affect properties with rendered walls more than those with cladding, the report said.
Least exposed to ground movement and storm damage were warehouses and distribution depots, even though this type of property was dominated by standard shed constructions with a low mass and absorbed external heat very readily.
Only 16 percent of Britain's warehousing space was built before 1940 while 57 percent had been built since 1970, Hermes and UCL said.
Modern construction techniques, though, were not necessarily a defense against the flooding risk faced by Britain's homes.
Nearly a tenth of homes built each year in 1996-2005 were in flood risk areas, partly due to a reluctance to allow building on so-called green belts of rural land around British cities, the Hermes/UCL report said.
"There is some evidence that government policy encouraging new house building to take place on previously developed land is part of the reason for this pattern," it said.
In total, about 1.7 million homes were located on British flood-plains, the report said.
(Reporting by William Kemble-Diaz; Editing by Rory Channing)