The Future of Commercial Real Estate is Green: What You Should Know to Stay Competitive
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The Future of Commercial Real Estate is Green: What You Should Know to Stay Competitive.
The world of commercial real estate is changing. Environmental, Social and Governance (ESG) factors are fast becoming a key part of property decisions – from leasing and tenant demand to financing and investment. While ESG is not yet mandated by law, it is increasingly expected. Property owners who fail to keep up with this shift risk falling behind as tenants and lenders place greater value on sustainability and ethical business practices.
So, what exactly is ESG, why does it matter, and what should commercial property owners, investors and landlords be doing now to remain competitive in the years ahead?
What is ESG?
ESG stands for Environmental, Social and Governance. These three pillars are used to assess how businesses and investments are managing risks, responsibilities and long-term sustainability.
- Environmental relates to how a property impacts the environment – think energy use, carbon footprint, waste management and water efficiency.
- Social refers to the people side of the equation – how buildings support health, safety, accessibility and community engagement.
- Governance is about decision-making, transparency, risk management and ethical business conduct.
For commercial property owners, ESG is no longer just about 'going green'; it’s about future-proofing assets, meeting tenant expectations and ensuring access to the best financing options.
Why ESG Matters for Commercial Property
While large corporations and premium-grade office towers may have been the first to focus on ESG, the trend is now reaching secondary and tertiary markets. More tenants are asking about energy efficiency and wellness features. Banks and investors are also looking at ESG performance when deciding where to place their funds and the terms to apply.
In simple terms, properties that embrace ESG are likely to attract better tenants, achieve stronger rental returns, be offered better lending terms and retain their value more effectively over time. On the flip side, those who ignore these trends risk being left behind as the market shifts.
Understanding Core, Secondary and Tertiary Property Sectors
The conversation around ESG often refers to core, secondary and tertiary sectors within commercial property.
Here’s what these terms mean:
- Core properties are high-quality assets in prime locations with strong tenant profiles and long lease terms.
- Secondary properties are good-quality assets, usually in established markets, but may lack the premium status of core assets.
- Tertiary properties tend to be older buildings or those in fringe or regional areas with higher vacancy risks and lower tenant demand.
While ESG upgrades might feel more achievable in core assets, secondary and tertiary properties have just as much to gain – if not more – from improving their sustainability credentials. With fewer competing properties offering ESG features, even small improvements can become a real point of difference.
How to Stay Competitive: Practical ESG Actions for Property Owners
The good news is that you don’t need to overhaul your building overnight to start aligning with ESG expectations. Here are some practical steps property owners and landlords can take moving forward:1. Improve Energy Efficiency
Upgrade lighting to LEDs, improve insulation or invest in smart energy management systems. Small improvements can lead to significant savings and make the property more attractive to tenants.
2. Embrace Smart Technology
Smart building technologies like automated heating, ventilation and air conditioning (HVAC) systems or real-time energy monitoring not only improve environmental performance but also appeal to modern tenants seeking operational efficiency and cost-effectiveness.
3. Engage Tenants on Sustainability
Encourage tenants to be part of your ESG strategy by offering recycling programs, green lease clauses or incentives for reducing energy consumption. Engaged tenants are more likely to stay long-term and support shared sustainability goals.
4. Explore Sustainable Finance Options
Many lenders now offer green loans or more favourable lending terms for properties that meet certain ESG criteria. These finance options reward sustainability initiatives, helping property owners reduce borrowing costs while supporting their ESG journey.
5. Stay Informed and Plan Ahead
Keep up to date with local planning regulations and sustainability initiatives. Look for ways to future-proof your asset, whether through renewable energy options, green certifications or wellness upgrades like improved air quality or end-of-trip facilities.
Conclusion.
ESG may not be legally required just yet, but market expectations are shifting fast. Properties that lead the way in sustainability and governance will be better positioned to attract quality tenants, secure favourable financing and hold long-term value.
At Shead Property, we understand the local market and the growing importance of ESG in commercial real estate. Our dedicated commercial team can help you identify where to focus your efforts to remain competitive and achieve the best results for your asset.
Contact us today on 02 8448 1200 to discuss how we can support your property goals in this evolving landscape.
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