Tenants’ ESG: influence on preferences and rent premiums for green buildings in commercial real estate

Nan Liu, Yuan Zhao, Bowen Yan and Norman Hutchison

Journal of Property Research, 2025, vol. 42, issue 4, 321-355

Abstract: This paper investigates the impact of Environmental, Social, and Governance (ESG) considerations on occupiers’ preferences and willingness to pay (WTP) for sustainable buildings in commercial real estate. Using lease transactions of office and retail spaces in London, combined with ESG scores from the Refinitiv database, we analyse whether ESG-conscious firms are more likely to choose green-labelled properties, and how their WTP for such spaces varies according to their ESG profiles. Our findings indicate that publicly listed companies, which are more likely to emphasise ESG considerations, are more likely to occupy BREEAM-certified offices. Office tenants with higher Governance scores also exhibit a stronger preference for BREEAM-certified buildings. In contrast, these relationships are not observed in the retail sector. Although tenants’ overall ESG scores are not significantly associated with WTP for green-labelled properties in either market, retailers with strong Governance scores are willing to pay a premium for BREEAM-certified spaces. The link between tenants’ ESG scores and their demand for green-certified buildings appears to be stronger in recent years, reflecting the growing emphasis on ESG considerations. Our findings underscore the diverse priorities of tenants across the real estate market and offer valuable insights for property owners in developing effective leasing strategies.

Date: 2025
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DOI: 10.1080/09599916.2025.2494562

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