Office grades less relevant as ESG is prioritised

Real estate data is painting a stark picture of tenants’ preference for new and refurbished offices as companies face increasing pressure to meet sustainability requirements.

The net office take-up for ‘prime’ office space across Australia over the 2022/2023 financial year was 182,000 square metres compared to minus 41,000 sqm for ‘secondary’ office space, JLL data shows.

Speaking on the Perspectives podcast, Andrew Ballantyne describes the divergence between the two real estate types as the “haves and have nots” of the office sector, pointing out a more pronounced trend in Sydney and Melbourne – but not for long.

“Cities outside of Sydney and Melbourne have a larger proportion of smaller organisations that don’t yet have their own ESG statements so they’re less driven by factors around net zero. But I will caution that many of them are suppliers to larger groups that will start to impose demands on them as they aim to meet their scope 3 requirements,” Ballantyne says.

As ESG moves to the top of boardroom agendas, Ballantyne adds that the concept of real estate ‘grades’ is losing its relevance.

“There are secondary grade assets that can either be repositioned, or actually do have reasonable sustainability credentials, but are classified as secondary for other reasons. Conversely, there are lower quality grade buildings that don’t have the same level of sustainability, so I think that assessment of an overall building is going to be a lot more complex than just looking at what its grade is and what that traditionally reflects.”

Listen to other episodes of the Perspectives Podcast.