ESG credentials remain key for commercial property investors: Knight Frank

A survey of 40 commercial property investors around the globe, including in Australia, finds many are still considering ESG credentials, "incentivised" by potential value.

The ESG Property Investor Survey 2025 found the investment strategy of investors with assets in Australia is largely driven by internal net zero goals (91.7%), enhanced returns (75%) and external stakeholder pressure (75%).

Other drivers include disclosure and regulatory requirements (both 67%).

Over 83% of investors with assets in Australia said their ESG strategy for commercial property is to improve the quality of existing portfolio through retrofitting or refurbished assets, the study found, while 75% acquired poor ESG-performing assets to retrofit or refurbish.

Further, the motivating factors for retrofitting were achieving a higher level of environmental certification (75%), followed by achieving a higher rental value (67%) and achieving a higher exit value (58%).

Knight Frank Australia's head of ESG Jenine Cranston said ESG remains central to both investment and operational strategies, incentivised by potential value and rental gains, as well as net zero requirements.

"We are seeing demand developing from both investors and occupiers for properties with solid ESG credentials as all parties increase focus on their own sustainability targets, which is motivating owners to act," Cranston said.

"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.

"Buildings with better ESG credentials are also more in demand amongst occupiers, which will lead to higher occupancy rates and rents."

Cranston's comments follow the firm's latest (Y)OUR SPACE report, indicating up to 67% of corporate respondents had a net zero carbon target for their business, and their offices form a big part of it.

"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 January 1 this year," she continued.

"These pressure points are all leading property investors in Australia - and globally - to have a greater focus on ESG."