Xue Xiao, assistant professor in the Blackwood Department of Real Estate in the Pamplin College of Business, has been awarded the 2025 Manuscript Prize for Commercial Real Estate by the American Real Estate Society (ARES).

“I am deeply grateful to receive this honor,” said Xiao, author of the paper examining sustainability in commercial real estate. “This award affirms the relevance of the research findings on commercial real estate transition risk and motivates me to continue advancing the knowledge frontier on how risk management shapes real estate sustainability and resilience.”

Impact of climate transition risk on leasing markets:

Xiao’s research explores how tenants’ exposure to climate transition risk affects the commercial real estate leasing market, particularly how landlords perceive and price this risk.

As governments, investors, and consumers increasingly push toward a low-carbon economy, firms, especially those with high carbon intensity, face growing financial and operational uncertainty. This evolving landscape, known as climate transition risk, introduces new challenges that differ from physical climate risks such as property damage by natural disaster.

By analyzing office lease transactions alongside firm-level carbon intensity of tenants, the study examines how changes in tenant risk profiles influence leasing behavior.

“This shift is becoming increasingly relevant in commercial real estate, where long-term lease agreements tie landlords’ income to tenants’ financial stability,” Xiao said.

The findings show that tenant climate transition risk is not consistently priced across the market. Instead, landlords tend to respond only when the risk becomes sufficiently large.

What this means for the industry:

Xiao’s research highlights a critical but often overlooked factor in commercial real estate: tenants are not only sources of rental income, but also carriers of financial risk.

The study demonstrates that tenant climate transition risk can influence leasing decisions, which ultimately impact property valuation and investment strategy, particularly as regulatory environments evolve. In regions with more stringent carbon policies, the pricing effects of this risk are more pronounced.

These findings add a new dimension to how industry professionals approach underwriting and asset management of commercial real estate. Beyond traditional financial metrics, landlords and investors may need to consider how exposure to climate-related risks within their tenant base could affect long-term income stability.

More broadly, the research provides insight into how shifting economic and policy conditions are reshaping commercial real estate markets. As climate considerations become more central to financial decision-making, understanding how these risks are transmitted through tenants will be increasingly important for investors, lenders, and policymakers.