Sustainability and the shifting resilience profile of Australian commercial property

Commercial property owners are navigating growing pressures as climate regulations, tenant expectations, and capital market scrutiny converge. 

From 2025, the Australian Sustainability Reporting Standards (ASRS) will require climate risk disclosures for large entities, encouraging greater transparency around emissions and transition strategies. KPMG's 2024 Sustainability Reporting Survey found that 90% of ASX 100 companies acknowledged climate as a financial risk, with 76% aligning their reporting with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. This increased transparency is beginning to shape investor and tenant decisions.

Green Star-rated assets are increasingly seen as preferred investments. Data shows that 68% of 5- and 6-Star buildings maintain over 90% occupancy, with each additional star linked to a 2% occupancy increase. These buildings also tend to attract higher valuations and longer lease terms. In Melbourne, while overall CBD office vacancy reached 16.4% in early 2024, premium buildings (often Green Star-certified) had lower vacancy rates at 11.2%. Foreign investors are showing growing interest in these sustainable assets, recognising their resilience and alignment with ESG criteria. What was once a compliance exercise in sustainability reporting is now becoming a key factor in securing capital, retaining tenants, and ensuring long-term viability.

The sector is increasingly recognising that resilience is not just a label, it plays a central role in valuation, insurability, and investor confidence.

A turning point for asset performance

Sustainability-linked expectations are reshaping the commercial property market. 

Recent data suggests that Melbourne and Sydney may face nearly $10 billion in retrofit costs to bring over 3.5 million square metres of ageing office space up to modern green standards. Without these upgrades, such buildings could struggle to remain competitive or lettable over the next decade.

Tenant preferences are evolving as well. Institutional occupiers are more frequently requesting minimum energy ratings and emissions performance as part of lease negotiations. Landlords who are unable to meet these expectations may encounter longer vacancy periods, increased operating costs, and pressure on rental yields.

Meanwhile, financiers are factoring in climate transition risk premiums, which can raise the cost of capital for assets considered environmentally outdated. This trend is influencing asset valuations and long-term income stability, particularly for portfolios that have yet to integrate climate risk into their strategic planning.

To address these challenges, landlords can begin by conducting gap analyses against NABERS and Green Star benchmarks, prioritising upgrades that deliver measurable energy and emissions improvements. Engaging with sustainability consultants and leveraging green financing options can also ease the capital burden of retrofits. Early engagement with tenants around shared sustainability goals may unlock longer lease terms and collaborative investment in building performance.

Insurance implications, from climate to cyber

As commercial properties adopt smart technologies to enhance energy efficiency and sustainability, they also face new cybersecurity challenges. 

Building management systems, IoT-enabled devices, digital access controls, and tenant portals are now commonplace, yet many were not originally designed with cybersecurity in mind. These interconnected systems can increase exposure to cyber threats, potentially compromising sensitive data and disrupting essential building functions such as HVAC, lighting, or access control. The June 2025 cyberattack on the Brisbane Entertainment Centre illustrates how digital vulnerabilities can translate into operational risks.

This evolving landscape is prompting insurers to reassess how they evaluate risk. Properties that can demonstrate both energy efficiency and cyber resilience are more likely to secure favourable insurance terms. Conversely, buildings lacking robust network security, patching protocols, or incident response frameworks may encounter reduced coverage or higher premiums. As standards like ASRS gain traction, cyber resilience is increasingly viewed as a vital component of ESG governance. Without integrated frameworks to manage both climate and cyber risks, property owners may face financial, legal, and reputational challenges in a market that is becoming more attuned to digital vulnerabilities.

Insurers are increasingly looking for evidence of integrated risk management frameworks. This includes documented sustainability reporting, climate scenario modelling, cyber risk assessments, and active governance structures. Properties that can show alignment with ASRS, TCFD, and ISO cybersecurity standards are more likely to be viewed favourably. Demonstrating a proactive approach to risk, rather than reactive compliance, can significantly improve insurability and reduce premium volatility.

A strategic imperative for property leaders

Commercial property owners and REITs are encouraged to take proactive steps. 

The era of voluntary ESG reporting as a reputational tool is giving way to a focus on tangible action, validated climate data, integrated scenario modelling, and transparent governance.

Implementing these measures is not only about regulatory alignment, but also about safeguarding long-term asset value. Buildings that achieve NABERS or Green Star certifications are already outperforming peers in lease-up rates and tenant retention. Investors and tenants are paying close attention.

As the ASRS matures and more companies are subject to the requirements, insurers are likely to adjust their approach because they need to understand their indirect climate impact and align their portfolios with net-zero goals. Assets lacking a clear pathway to sustainability and those lacking suitable climate and/or cyber resilience could be subject to higher premiums or limited coverage. Increasingly, sustainability will become a key consideration in underwriting appetite and decisions.

Conclusion

The commercial property sector is at a pivotal moment. Risk frameworks are evolving to address broader systemic pressures - environmental, technological, and reputational. 

Organisations that prioritise resilience by integrating sustainability into design, strategy, and governance are likely to attract capital, reduce claims volatility, and maintain asset value.

As sustainability, technology, and regulatory dynamics reshape the risk landscape, traditional models may no longer suffice. Taking thoughtful, informed action can help property leaders stay ahead.

Howden supports clients in navigating this evolving landscape by offering tailored guidance on sustainability reporting requirements – including calculating greenhouse gas emissions, setting decarbonisation strategies and identifying and managing climate risks and opportunities. In partnership with Sention and Parvate ESG, we help our clients navigate ASRS requirements and strengthen their capacity to anticipate and manage emerging risks through data-driven insights and scenario analysis. Our Financial Lines team works closely with insurers to secure better outcomes on the Insurance Market Index (IMI), helping clients demonstrate risk maturity and unlock more favourable terms. Through our integrated approach, combining ESG strategy, cyber resilience, and insurance expertise, we empower property owners to protect asset value and build long-term confidence with stakeholders.