As real estate adapts to immense change, it may be pertinent to look back at what has happened, to prepare ourselves for what may come. Real estate owners today, grappling with falling revenues, are under intense pressure to contain costs and budgets have come under extra scrutiny. However, rather than an arbitrary implementation of cost containment plans, property owners are advised to manage the total cost of risk and identify cost savings from a risk management perspective. Within risk management, resilience is a critical component in making a building, and companies, more functional and productive. Actions to improve building resilience makes economic and financial sense. When Typhoon Mangkhut passed through our part of the region in 2018, it left behind US$3 billion in economic losses and US$900 million in insurable losses. Today, the economic impact on real estate from the current pandemic is also clear. More than 40 per cent of notified insurance claims due to Covid-19 have come from real estate, mainly from shopping malls and hotels. The losses real estate has suffered from these events arises from both property damage and business interruption. As occupiers become more risk aware, greater focus will be placed not only on building attributes but also on property management. Moreover, how effectively a building is managed will certainly interest insurers. Hong Kong businesses affected by vandalism and arson during protests seen filing up to HK$600 million in insurance claims The risks posed by extreme weather events and infectious disease have evidently not gone away, while others are now more relevant than before. Cyber risks have become greater as demand has risen for technological solutions across the real estate spectrum. The digitalisation of real estate, driven by the smart building concept and the use of robotics, artificial intelligence and Internet of Things (IoT), presents additional exposure for stakeholders. Cyberattacks pose a threat to network infrastructure, business continuity, and data integrity. The potential cost of an attack has also risen due to the burgeoning privacy regulatory environment. In a complex industry such as real estate, where information is often exchanged across different jurisdictions with differing regulations, implementing effective data protection controls into daily operating procedures is a major challenge. The shift to remote working for many companies also increases the need for close alignment between people, processes, and technology to enable controls across all the three pillars and mitigate the new emerging risks. In fact, breaches resulting from general human errors or social engineering account for more than 90 per cent of cyberattacks. Cybersecurity among top concerns for Asia-Pacific businesses, Hong Kong firms more worried about political risk: Allianz poll As the real estate industry undergoes digital transformation, cybersecurity should be viewed as a key enabler of growth. Occupiers are demanding more from their space, including in the technological sphere. A flight to quality will emerge from the current disruption as companies opt for offices that facilitate greater productivity and serve to attract and retain the best talent. Resilient buildings, in the broadest terms, covering all risks, both operationally and physically, will be in greater demand and command the highest values. However, can risks be foreseen to increase preparedness and make assets more resilient? The World Economic Forum Global Risks Report for 2019 highlighted the increased frequency of disease outbreaks, the erosion of important governance systems and protocols, a greater threat posed by an “innovative” pandemic and increased vulnerability to societal and economic impacts. In particular, it highlighted a “roll-call of near-miss catastrophes” since 2000 and weaknesses in preparedness to detect, assess, report, and respond to acute public health threats. The report also contained a survey, the Global Risks Perception Study (GRPS), carried out among its extensive network of decision makers and thought leaders, assessing both the likelihood of a risk occurring globally within the next 10 years, and its negative impact. Of note among the results for the 2019 and 2020 editions of GRPS (surveys are carried out in September and October the previous year) is that the spread of infectious disease did not rank among the 10 most likely risks in either year. This is not to say that the risk was not taken seriously, but rather that participants perceived more pressing concerns. There are many reasons why individuals, companies, and governments may fail to act when faced with evidence of a possible threat. Some of these arise from economic considerations – for example, how scarce resources are allocated and possible first-mover disadvantage. It is conceivable that a company allocating capital to mitigate some less tangible risks could be penalised in the short-term relative to its peers by investors. However, I would also argue that these companies are also better placed to achieve higher risk-adjusted returns on a consistent basis. Certain characteristics of our cognitive functioning may also dictate or shape our lack of action. Tim Harford, writing in the Financial Times about “Why we fail to prepare for disasters”, identifies some key behavioural characteristics that may be at play – normalcy bias, herd instinct, egotistical optimism, exponential myopia, and a capacity for wishful thinking. In both the 2019 and 2020 editions of GRPS, extreme weather events and the failure of climate-change mitigation and adaptation were rated the risks most likely to occur, and in the top three for their potential negative impacts. Survey respondents certainly cannot be accused of a lack of awareness of these issues. With more information at our disposal, now more than ever before, property owners, occupiers and investors can make better-informed risk-adjusted decisions. The outcome is likely to be greater demand for resilient, well-managed buildings. Edward Farrelly is senior vice-president, real estate industry leader Asia, at Marsh