Australian commercial property investors are sharpening their focus on environmental, social and governance (ESG) strategies as sentiment across the sector strengthens.
Investor confidence in commercial real estate hit an eight-year high in Q1 2025, according to NAB’s Commercial Property Index, buoyed by expectations of interest rate cuts and improving fundamentals across office, industrial, and retail segments.
In this context, many investors are now viewing environmental and sustainability upgrades as a key lever for value creation and future-proofing portfolios.
Knight Frank’s ESG Property Investor Survey 2025, which gathered responses from 40 global commercial investors with £300bn in assets under management, found that more than 83% of Australian investors plan to retrofit or refurbish existing assets to meet ESG targets, with a further 75% actively acquiring poor-performing assets to upgrade, Property Council reported.
Knight Frank Australia’s Head of ESG Jenine Cranston (pictured left) said ESG is now central to commercial property strategies.
“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.”
Internal net-zero targets were the top driver of ESG investment strategies in Australia (91.7%), followed by enhanced returns (75%) and external stakeholder pressure (75%). Regulatory and disclosure requirements also played a significant role (67%).
Investors pointed to improved environmental certifications (75%), rental value uplift (67%), and higher exit values (58%) as the main motivations for upgrading assets.
“Buildings with better ESG credentials are also more in demand amongst occupiers, which will lead to higher occupancy rates and rents,” Cranston said.
“According to Knight Frank’s latest (Y)OUR SPACE report, 67% of corporate respondents had a stated net-zero carbon emissions target for their business, and the real estate they occupy forms a big part of this.
“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.”
Michael Kwok (pictured right), Knight Frank head of capital and strategic advisory, said that while appetite remains strong, ESG-related capex spending is more measured in the current market cycle.
“Investor sentiment around ESG and associated capex spend in the Australian commercial property market is more defensive in nature to maintain value at this point in the cycle,” Kwok said.
“Investors continue to show appetite for well-located assets with quality amenities, wellness features and strong ESG credentials.”
