For years, we’ve discussed environmental sustainability in real estate as though it were optional – a “nice to have” rather than a “need to have.”
That era is over.
The convergence of market forces, technological advancement, and regulatory changes means that a property’s environmental performance is rapidly becoming as fundamental to its value as location and build quality.
Having just returned from COP 29, where I represented our sector in discussions about the role of real estate in the global transition to sustainability, I can say with certainty that we’re approaching a tipping point.
The question is no longer whether sustainable properties will command a premium, but how significant that premium will be – and conversely, how substantial the discount on environmentally underperforming properties might become.
Consider this: major banks are now required to rate the climate risk within their mortgage portfolios. This isn’t just an academic exercise – it’s reshaping lending practices.
Properties with poor energy efficiency ratings may soon face higher interest rates or even struggle to secure financing altogether.
This mirrors trends we’re already seeing in commercial real estate, where “green premiums” and “brown discounts” are increasingly evident in valuations.
The economic imperative for sustainability extends beyond mere asset values.
A high-performing, energy-efficient home delivers immediate financial benefits through reduced operating costs.
Just as upgrading from an old energy-hungry refrigerator can pay for itself through lower electricity bills within months, strategic investments in a property’s environmental performance can generate substantial returns through reduced energy costs while simultaneously increasing the property’s market value.
But here’s what many in our industry haven’t yet grasped: this isn’t just about solar panels or energy-efficient appliances.
The next wave of property sustainability encompasses everything from construction materials to water management systems.
Moreover, with minimum energy efficiency standards set to increase, property owners who delay action risk finding themselves forced to make costly upgrades under time pressure.
Recent CoreLogic analysis underscores this reality with their December 2024 ‘Amped Up’ report revealing homes built after 2010 achieve nearly double the energy efficiency rating of older properties (5.9 stars versus 2.8 stars), demonstrating how building standards have already reshaped the market.
With banks increasingly offering preferential ‘green’ lending terms and energy cost savings potentially reaching thousands of dollars annually, these efficiency ratings aren’t just numbers – they’re becoming important market differentiators.
The data shows this isn’t a future trend; it’s happening now.
This shift presents both a challenge and an opportunity for real estate professionals. Our role must evolve from simply facilitating transactions to becoming trusted advisors who can guide clients through the complexities of sustainable property investment.
This means understanding energy ratings, being familiar with sustainable technologies, and being able to articulate the long-term value proposition of green investments.
The property industry has sometimes been accused of being slow to change, but we can’t afford such hesitancy regarding sustainability.
The economic case is clear: the technology is available, and the market is increasingly demanding it. Those who move first will capture the opportunities this transition presents; those who wait risk being left with increasingly unmarketable assets.
As we look toward 2025 and beyond, it’s clear that the “green premium” in real estate isn’t just about environmental consciousness – it’s about fundamental market value.
For property owners, the message is clear: invest in sustainability now, or risk watching your asset value erode as the market increasingly favours high-performing, environmentally conscious properties.
The future of real estate is sustainable, not because of ideology, but because of inevitable market forces. The only question is whether we’ll be leaders or followers in this transition.
