The ESG outlook: Sector-specific property trends for 2025
We spoke with Knight Frank's research experts to explore some sector-specific ESG predictions for 2025
7 minutes to read
While we have shared our overarching themes for 2025 in relation to ESG and property, we also turned to our sector specialists, who share their thoughts below.
Leading or lagging?
Dr Lee Elliott, Head of Global Occupier Research
Over the next year, ESG will become a defining element of corporate real estate strategies. As climate risks accelerate and the 1.5-degree Celsius threshold looms closer, rising insured and uninsured losses will expose vulnerabilities in real estate portfolios, making resilience and proactive risk management essential. In a higher interest rate environment, the rising cost of green building projects will challenge businesses to balance sustainability with financial strategy.
Beyond environmental concerns, the social and governance aspects of ESG will take centre stage. Employee well-being, diversity, community impact, and strong governance practices will shape real estate decisions as stakeholder scrutiny reaches an all-time high. Companies failing to act risk regulatory penalties, reputational damage, and falling behind in a competitive landscape. In 2025, corporate real estate strategies prioritising ESG will lead the way, proving that sustainability is not just good ethics but smart business.
To learn more about occupier trends for 2025, check out our latest report: Changing Tact: Ten Corporate Real Estate Trends That Will Define 2025.
Balancing profit and planet
Emma Barnstable, Associate in Retail Research
In 2024, the retail sector faced mounting cost pressures, including the UK's £4bn budget "triple whammy," prompting many businesses to prioritise profitability and store viability over ESG commitments. While scepticism toward ESG initiatives grew, trailblazers like Sainsbury's and IKEA showcased the strategic value of sustainability, leveraging innovations like EV charging networks and renewable energy investments to align environmental goals with business growth.
Looking ahead to 2025, ESG themes are poised to evolve from a compliance obligation into a strategic opportunity. Retailers are expected to accelerate energy efficiency upgrades, balance the rebuild versus retrofit debate, and amplify their social impact as economic anchors in struggling high streets. The year will test the industry's ability to harmonise immediate financial pressures with long-term sustainability ambitions, positioning ESG as both a challenge and a catalyst for retail's reinvention.
The complete ESG predictions for retail in 2025 are in the article Retail and ESG in 2025: Bigger Fish to Fry.
To green or not to green
Claire Williams, Head of UK and European Industrial Research
The themes from 2024—sustainability as a competitive edge, the importance of building materials and embodied carbon, and challenges in aligning design with sustainability—remain highly relevant as we move into 2025.
While not a new concept, investors will be increasingly seeking green lease clauses in their lease agreements in 2025. For landlords, these clauses can offer a way to protect their assets, future-proof against upcoming/proposed environmental legislation and issues, and support ESG commitments and sustainability goals. However, some industrial and logistics occupiers, and manufacturing firms in particular, may view green lease clauses as too intrusive or restrictive, particularly if they include data-sharing obligations or restrict tenant energy usage or alterations that might adversely impact energy efficiency.
It is likely that we will continue to see a growing number of "green lease" terms proposed in lease agreements. Therefore, the onus is on both landlords and tenants to develop workable solutions or clauses that can cater to the unique needs and operational practices within industrial and logistics operations, incorporate and promote sustainable practices and protect the underlying asset value.
Future-proofing London offices
Shabab Qadar, London Office Research Partner
ESG remains a key focus for landlords and investors in Central London, driven in large part by heightened regulatory compliance and reporting requirements. However, a key challenge for developers in 2025—who have consistently delivered industry-leading, best-in-class projects—will be navigating a testing economic environment where ESG priorities must be balanced against project viability.
The "S" in ESG is increasingly important, with growing attention on how workplace design can enhance tenant wellbeing, promote diversity and inclusion, foster community engagement, uphold ethical practices, and create meaningful social value.
Powering data centres
Darren Mansfield, Head of Data Centre Research
Sustainability in data centres has transitioned from being a priority to a necessity. Environmental conformity pressure from governments and customers continues to escalate, meaning operators are held to higher standards of accountability and transparency. In 2025, examples of the industry players embracing renewable energy sources, advanced cooling technologies, and innovative designs will rise again as operators react to efficiency requirements.
One emerging trend is likely to be further adoption of Small Modular Reactors (SMRs), particularly by large hyperscalers. Alongside power source stability, SMRs support sustainability in data centres with carbon-free energy, reduced emissions, and improved efficiency by repurposing waste heat and enabling on-site power generation.
Eco-luxury
Kate Everett-Allen, Head of European Residential Research
The integration of ESG principles is transforming the luxury residential market in Europe. This shift is primarily driven by regulatory changes, evolving buyer preferences, and the increasing importance of sustainability in property development.
Regulations are at the forefront of this transformation. For instance, France's new energy regulations, effective January 2025, will ban the rental of homes with a G energy rating. This change is pushing landlords and developers to prioritise energy efficiency upgrades.
On the buyer side, there is a growing interest in sustainable properties. According to Knight Frank’s Alpine Property Report, nearly half (49%) of respondents consider energy ratings essential when purchasing a property, while 43% find it somewhat important. Our survey data suggests that buyers from the UK, UAE, France, the US, and Belgium are particularly focused on sustainability when investing in luxury homes.
For a broader look at trends in Europe for 2025, read the blog 2025 Outlook: European Real Estate and Political Shifts.
Future of student housing
Holly Lush Thurston, Associate in Student Housing Research
Students are placing increasing value on well-being aspects such as a 'home away from home' and support with potential course issues; student accommodation that is successful at delivering this will undoubtedly be championed by student residents. Some 78% of students consider well-being and mental health support from their accommodation providers as an important factor in their decision on where to live at university, according to our 2024 Student Accommodation Survey. For the first time, students ranked an on-site well-being rep or practitioner above physical facilities such as a gym when scoring amenities that are important to their well-being.
Sustainability and the environment are both important to how students make their accommodation choices. For example, 55% of students state it is important to them that a building must meet environmental standards, however there is a limit to what can be provided while considering student budgets for accommodation. There is also requirement for new PBSA to have stronger environmental credentials driven by new regulations and investors future-proofing developments. Students recognise the importance of environmental issues and that adds to the value for money provision of PBSA. Nevertheless, our research shows very few students are willing to pay extra if it meant their building was carbon neutral.
The difference between PBSA and the wider rental sector is growing; ESG credentials such as being carbon neutral, supporting student well-being, and mental health awareness will continue to widen the gap and become a growing factor in students differentiating between the two.
Will Labour’s plan deliver?
Anna Ward, Associate Residential Development Research
The dramatic headlines on nutrient neutrality have subsided. It is no longer a question of picking the environment over housing. The new Labour government have unveiled new plans to address both, which have so far not garnered that much attention. The question now is will it succeed in its twin aim of unblocking housing development while preserving the environment? It is early days to draw conclusions on this, but I think it could draw the ire of environmentalists: the message seems to be pollute now, clear up later (and elsewhere), while it is questionable how “streamlined” the new central fund to mitigate against pollution will actually be. The intentions are clearly good, but it will be important to see the final detail in the Bill and how it plays out.