More of the same? Sustainability & real estate for 2026

2025 marked a shift: ESG became an ‘avoid’ in parlance yet embed in practice. As I noted in my monthly newsletters the narrative evolved, moving from pledges to pragmatic action with a focus on operational impact. Interestingly, a ‘do-say gap’ emerged as noted by Bain & Co: “CEOs might speak less about sustainability, but what they lack in words, they make up in action.”

At the outset of 2025, I highlighted five themes I expected to be prominent with several coming through strongly. Across the Sustainable Property Insights newsletters, three themes dominated:

1.    Data-driven decisions: Retrofitting assets for energy efficiency and resilience lead the way, with almost three-quarters of respondents to our ESG Property Investor Survey identifying retrofitting assets as a primary ESG strategy. Energy Use Intensity (EUI) became the go-to metric for performance, yet ambiguity and mismatch in measurement has held it back. 
2.    Clean energy & electrification: Grid reforms, renewables, and EV infrastructure accelerated, supporting the UK’s ambition to be a “Clean Energy Superpower”. Renewables as an investment class and the growing corporate power purchase agreement market highlight this. The growing need for energy, and clean energy, is underscored by the demand for AI, electrified buildings and transport. 
3.    Resilience & risk: Physical climate risks and insurance costs rose, making resilience central: Owners and occupiers must shift from reactive to proactive strategies to ensure building resilience and limit value impacts. Physical risks priced and one third of respondents in our ESG Property Investor Survey cite higher operating costs and a quarter higher capital expenditure due to frequency and intensity of weather. The first half of 2025 may have been the costliest ever for natural disasters but this is only likely to increase, as this piece in the Financial Times (and pointed to here) highlights.

What else from 2025?

Retrofitting momentum continues but is constrained. We’ve yet to see updates on Minimum Energy Efficiency Standards for non-domestic buildings or the EPC reform proposed in late 2024. Policy delays remain a drag on action. However, in the residential sector more stringent energy efficiency for the private rented sector was re-proposed, again we await the results of the consultation.

EV adoption rose steadily. Battery EVs accounted for 22.7% of new car registrations November YTD (SMMT), still short of the 28% Zero Emission Vehicle mandate. Government grants and plans to accelerate charging infrastructure were countered in the November Budget announcement of a pay-per-mile tax. This slow but growing adoption trend matters for real estate – parking facilities and logistics fleets will feel the impact (see Claire Williams take on the Budget for fleets).

The next page in the story

Quiet sustainability efforts may soon become a battleground. Bloomberg’s piece hints towards the quandary for money managers catering to divergent views. As HSBC noted in its Annual Reports Risk review at the end of 2024 “our reputation and client relationships may be damaged as a result of our decision to participate, or not to participate, in certain projects perceived to be associated with causing or exacerbating climate change”. 

Evidence of this began in 2025. Some asset owners pulled funds for a perceived climate backtracking (e.g., People’s Pension (Net Zero Investor) & Dutch fund PFZW (Reuters)), while others may have gained inflows for doing just that. Yet, as the Association of Real Estate Funds (AREF)’s recent White Paper notes with the title: this is about Value, not Values.

The broader industry view comes from Emerging Trends in Real Estate Report 2026 (ULI/PwC). Worries about sustainability and decarbonisation fell to 55% from 67%, suggesting these requirements are increasingly embedded in business models. As one asset manager notes:
“Sustainability is not throwing money after ideological things. We are always showing our investors that its use will ultimately lead to a better value story.”

In all respects, and the ULI/PwC respondents agree: best-in-class sustainable assets will continue to command liquidity and value, as one banker in the report warns, perhaps controversially, “there is no longer a market for non-green assets; they are illiquid products.”  

The takeaway: focus on elements that prove value implications, especially as economic challenges heighten scrutiny.

Looking ahead: The big three for 2026

The three themes from 2025 will likely remain dominant in 2026: risk and resilience, energy, and data.
 
1.    Risk and resilience

As noted, this is only going in one direction. The UNEP report puts us on course for 2.3-2.5 degree warming by 2100 before tipping points and if countries live up to their Nationally Determined Contributions (NDCs). Consequently, investors are paying attention. For 83% of respondents to the ULI/PwC study, it is now the second most important ESG credential for accessing finance, up from 75% last year. 

A few quotes from the ULI/PwC report highlight this:
•    One global CEO: “Exposure to physical climate risk represents a red flag for us – not a point of negotiation, simply a no-go.” 
•    One insurer noted: “We would argue that it’s less ESG and more risk management, but we’ve been spending more time on that space, because we have the in-house technical expertise from our insurance colleagues.” 
•    Another institutional investor describes a similar process, sharing that “after a few quarters of work, we analyse the performance part of the existing portfolio also from an insurance standpoint, looking at climate risk”.

The latest report from CDP found that 74% of companies with a transition plan (and 43% without) consider both acute and chronic physical risks, with 56% (21% without) using climate scenarios to inform strategy.

This matters across sectors, but logistics is particularly exposed – with weather impacting transport and facilities. We also flagged in November  the criticality of resilience for energy infrastructure. But, as shown in a study by the Climate Financial Risk Forum, this process is far from standard with the same 100 buildings being analysed by 13 vendors yielding varied results. The interpretation too needs some work.
 
2.    Energy

Energy remains the backbone of ESG strategies: the management, sourcing, and procurement. On the demand side there are increasing requirements to electrify heating/cooling buildings, to power data centres, and electrifying transport. These must be met with greater supply to avoid higher costs, and greener supply to bring down emissions. The challenges involve renewable build-out in the right locations, complemented by flexibility, and grid management.

Access to power is an emerging challenge, cited by 43% of ULI/PwC respondents (up from 40%). The Energy-Industrial Nexus theme in Balancing Acts: Corporate Real Estate in 2026 reinforces energy security as a critical investment factor.

Next year the focus will likely be on:
-    Electrifying buildings: Just over a quarter of investors look for fully electrified heating and cooling systems, according to our 2025 ESG Property Investor Survey. If the building is not yet electric, there will likely need to be an assessment of viability and cost as part of the due diligence process. In the UK, with around 39% of non-domestic EPC’s lodged in the past decade noting electricity as the main fuel, 35% for offices specifically, there is a long way to go.
-    Flexibility in demand: Ensuring greater efficiency to optimise Energy Use Intensity. Smart buildings, on-site storage, integrated EV systems and a look at procurement strategies are vital. The reforming of EPCs looks to include a ‘Smart Readiness’ metric.
-    More supply: More supply: Building out renewables to meet the Clean Power 30 goals, the Strategic Spatial Energy Plan (SSEP) and ongoing grid connection process reforms (see December update here) will be critical.
-    Flexibility in supply: Reliable and secure energy sources will matter most, particularly to sectors such as Data centres. Curtailment and negative pricing are growing with grid infrastructure unable to transport generation to meet demand.

Sectors to watch:
-    Energy infrastructure: Our inaugural report in 2025 set the tone, investors are eyeing real assets powering AI growth.
-    Offices: Clean, lean, green – efficient assets with renewable procurement routes.
-    Data centres: As highlighted in Data Centres: Taking Stock of Sustainability, power (and making it clean) is key. Will micro-grids become the norm as government explores private-sector build-out? 

3.    Data

Data underpins everything yet remains fragmented and therefore not reaching value potential. Reliable data, landlord-tenant sharing, and clarity on what each metric means are essential. Progress has been made, but we must go further: data isn’t for reporting as a tick-box exercise; it’s for driving value.

The next frontier is trust – green leases are common but weakly enforced. Collaboration is strong must deepen. Some 70% of respondents to our ESG Property Investor Survey actively communicating ESG initiatives through regular engagement meetings. Communication through building updates, is employed as a strategy by 58% of respondents, alongside the use of green leases. To strengthen this further, a structured feedback loop is being implemented, with 55% of asset owners providing tenants with data on energy, water, and waste usage. Evidence from our look at REITs reports shows tenant data coverage is improving but still limited.

This is reciprocated. Just over a third (36%) of occupiers surveyed in our (Y)OUR SPACE research anticipate increased engagement/dialogue with landlords, a further 56% expect it to be stable. Effective communication and share understanding of the benefits, and greater trust will enable more visibility of data which could serve to further enhance efficiency, cost and environmental benefits. 

“Occupiers want landlords who engage, not just transact,” notes Dr Lee Elliott Global Head of Occupier Research at Knight Frank. “The old adversarial model is giving way to partnership, especially in ESG. But expectations are pragmatic: occupiers aren’t asking for a ‘green bullet,’ they’re asking for clear, tactical support across the asset lifecycle. The winners will be owners who show, not tell, how they can enable real-world ESG integration.”

Outlook

2026 won’t bring radical new themes, but it will demand sharper execution. Risk, energy, and data are no longer optional extras; they are fundamental to value creation. The winners will be those who act decisively, prove outcomes, and rather than see it as a tick-box or cost, embed sustainability as a business imperative.