ESG has been growing in importance in Australia’s commercial property market for many years, with 2023 marking a turning point where we saw a visible shift from talk to action for businesses.
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Anecdotally we know that there is a much bigger emphasis being placed on ESG in Australia by both landlords and tenants, but findings from our recently released ESG Property Investor Survey 2025 provide evidence that investors are increasingly considering ESG in their investment decisions.
In Australia, this is being driven by the prospect of enhanced returns via increased values and rents, as well as net zero requirements.
The survey gathered the responses of 40 commercial property investors around the globe, including in Australia, representing assets under management totalling £300 billion ($616 billion), between November and December 2024, to determine the role ESG was playing for property investors.
Properties that have solid ESG credentials will attract more buyers when owners want to sell, and this buyer competition will underpin the asset’s value.
It found the investment strategy of investors with assets in Australia was driven by internal net zero goals (91.7 per cent), enhanced returns (75 per cent) and external stakeholder pressure (75 per cent), followed closely by disclosure and regulatory requirements (both 67 per cent).
Australian responses to What is driving your ESG investment strategy and due diligence process?
More than 83 per cent of investors with assets in Australia indicated their ESG strategy for commercial property was to improve the quality of their existing portfolio through retrofitting or refurbishing assets.
Meanwhile, 75 per cent said their strategy was to acquire poor ESG-performing assets in order to retrofit or refurbish.
The motivating factors for retrofitting were indicated as: achieving a higher level of environmental certification (75 per cent); higher rental value (67 per cent); and a higher exit value (58 per cent).
Australian responses: What is your ESG strategy in relation to property? Please select all that apply
Commercial property investors incentivised by returns and net zero requirements
ESG remains central to both investment and operational strategies for commercial property investors in Australia, with investors incentivised by potential value and rental gains, as well as net zero requirements.
We are seeing demand developing from both investors and tenants for properties with solid ESG credentials as all parties increase focus on their own sustainability targets, which is motivating owners to act.
Properties that have solid ESG credentials will attract more buyers when owners want to sell, and this buyer competition will underpin the asset’s value.
Meanwhile, buildings with better ESG credentials are also more in demand amongst tenants, which will lead to higher occupancy rates and rents.
On top of these drivers, there are also growing regulatory requirements in Australia, which are encouraging investors to prioritise ESG, with mandatory sustainability reporting having come into effect from 1 January this year.
This is a mandatory requirement for Australian businesses to provide detailed audit-ready reporting on their emissions.
Our ESG Property Investor Survey 2025 found disclosure requirements was the biggest thing driving the ESG investment strategy for commercial property investors in the UK and Europe
The compulsory climate related disclosures will affect all businesses – and therefore all tenants and landlords – via a phased-in approach until the 2028 financial year.
All of these pressure points – the prospect of greater returns via values and rents, and regulatory requirements – are leading property investors in Australia – and globally – to have a greater focus on ESG.
In Australia, our sales agents report that strong ESG credentials are one of the attributes investors are looking for in assets, along with a good location, quality amenities and wellness features.
While investor sentiment around ESG and associated capex spend in the Australian commercial property market appears more defensive in nature to maintain value at this point in the cycle, we believe it will add value in time.
Overseas markets are more advanced, but provide insight into where Australia is headed
The UK and European markets are more advanced than Australia on ESG in commercial real estate, and looking at their experience can help investors to determine where our local market is headed.
Our ESG Property Investor Survey 2025 found disclosure requirements was the biggest thing driving the ESG investment strategy for commercial property investors in the UK and Europe – a sentiment reflected in the overall global response.
This is due to stronger government regulation in these areas than in Australia. However, Australian regulations are growing and will continue to.
| Australia (%) | Global (%) | |
| Disclosure requirements | 67% | 69% |
| Internal Net Zero goals | 92% | 69% |
| Occupier preference/requirements | 58% | 66% |
| Enhanced returns | 75% | 63% |
| External stakeholder pressure (investors, shareholders) | 75% | 59% |
| Regulatory requirements (e.g. minimum efficiency) | 67% | 59% |
| Access to finance | 33% | 41% |
| Reputational risk management | 25% | 41% |
| Internal stakeholder pressure (employees) | 17% | 9% |
| No ESG strategy in place | 0% | 3% |
Buyers in the UK prioritise the purchase of commercial property with environmental ratings and certification in place. We are not yet seeing the same demand for ESG data from the Australian market, although anecdotally, we have seen a noticeable uptick in the need for dedicated ESG due diligence to meet the needs of investment committees.
In the UK ESG due diligence is now a standard request in a transaction and can affect a transaction proceeding, with many buyers now hesitant to buy without understanding the risk involved and the capex requirements.
Occupiers also value ESG
We know that tenants are driving a lot of the move for commercial property investors to adopt greater ESG strategies in Australia, with many occupiers demanding improvements.
Our latest (Y)OUR SPACE report for Australia found 67 per cent of corporate respondents had a stated net zero carbon emissions target for their business, and the real estate tenants occupy forms a big part of achieving those net zero goals.
I have recently seen a case where a building in a capital city is at risk of losing two tenants because the landlord wasn’t recording ESG data, which is something many tenants are now required to do as part their mandatory sustainability reporting requirements and/or their net zero journey.
Green leases are also becoming more popular, which essentially means a lease with a sustainability portion, providing a good framework around how the tenant and landlord will work together to improve the building’s sustainability over time. Having ESG data is crucial for this, as it enables improvements to be measured.
Near on 3 years ago Florida state rejected ESG, by eliminating ESG from state pension investments. Governor Rick deSantis described ESG as “an alarming trend” (ideological agenda).
He noted “tax dollars & proxy votes of Florida will no longer be commandeered by Wall Street financial firms & used to implement policies through the boardroom that Floridians rejected at the ballot box.”
Morgan Stanley Capital International (MSCI) described ESG as “investing at the consideration of environmental, social & governance factors in the investment decision making process.”