Do Green Leases Drive Higher Rents? Exploring the Evidence and Value of Sustainability in Australian Shopping Centres

The rise of sustainability in property management is making green, sometimes called “sustainable leases”, a desirable feature in shopping centre development. Beyond their environmental benefits, do green leases lead to higher rents? Evidence suggests that green leases not only support sustainability goals. Still, it may also command a rental premium in the market, driven by tenant demand, operational cost savings, and enhanced property values. Retail centres like Rouse Hill Town Centre and Eastern Creek Quarter illustrate how green leases add value for landlords and tenants. Green or sustainable leases integrate environmental responsibility into lease agreements, setting expectations for landlords and tenants to collaborate on sustainability practices.

What are Green Leases?

Green leases, or sustainable leases, integrate environmental responsibility into lease agreements, setting expectations for landlords and tenants to collaborate on sustainability practices. Typical green lease provisions include:

• Energy Efficiency: To reduce consumption, energy-saving upgrades, such as advanced lighting and HVAC systems, are required.
  
  
• Waste Reduction: Outlining waste management practices, including recycling and composting.
  
  
• Water Conservation: Encouraging reduced water usage through efficient fixtures and water-saving initiatives.
  
  
• Carbon Emissions Tracking: Some leases mandate carbon footprint tracking, setting reduction goals for both landlord and tenant.
  
  
• Wellness Standards: An increasing number of green leases also incorporate WELL Building Standards, which focus on human health and wellbeing. These standards cover air quality, natural lighting, and other factors that improve tenant and shopper wellness, appealing to eco-conscious and health-focused brands.

This collaborative approach aligns with consumer preferences for sustainable, wellness-oriented shopping environments while contributing to operational efficiency and financial health in retail shopping centres.

Evidence Linking Green Leases and Higher Rents

Growing evidence shows that green leases can command higher retail real estate rent. Here’s how these agreements add value, often justifying a rental premium:

1. Increased Tenant Demand and Willingness to Pay
   Today’s tenants, especially larger, eco-conscious brands, are increasingly willing to pay a premium for green-certified retail spaces that align with their sustainability goals. A study by JLL found that, in specific markets, tenants are willing to pay up to 20% more in rent for properties with robust sustainability measures.
   
   Properties offering green leases attract high-quality tenants who value energy-efficient buildings, waste reduction, and lower water usage. These tenants will pay more for spaces that align with their brand’s values and ESG (Environmental, Social, and Governance) commitments.
   
   
2. Cost Savings from Efficiency Gains
   Green leases often bring significant cost savings to tenants through lower utility bills, water conservation, and waste management. For instance, energy-efficient HVAC systems and LED lighting can substantially reduce electricity usage, while waste reduction programs cut disposal costs.
   
   
3. Enhanced Property Values and Marketability
   These operational savings help justify higher rents, as tenants perceive clear financial benefits over time. The cost savings associated with the green lease can offset higher rents, delivering a net economic advantage which allows landlords to command a rental premium.
   
   Landlords benefit from green-certified buildings that attract long-term tenants, reduce vacancy and turnover costs, and ultimately enhance the property’s market appeal and value.
   
   
4. Alignment with Regulatory and Investor Expectations
   Green leases can help properties align with current regulatory incentives and investor expectations, especially as investors prioritise ESG-compliant assets. These properties often benefit from regulatory incentives or tax breaks, making them more attractive to investors.
   
   As the regulatory landscape evolves, green leases allow landlords to stay ahead of compliance demands, positioning their properties as forward-thinking and responsible investments.
   

Real-world Examples: Rouse Hill Town Centre and Eastern Creek Quarter

Rouse Hill Town Centre
Rouse Hill Town Centre, developed by GPT Group, exemplifies a retail shopping centre that integrates sustainability into its design and operations. Its green lease provisions encourage tenants to participate in its energy and waste management initiatives, including:

• Energy Efficiency: The centre’s advanced HVAC and solar panel systems reduce energy consumption.
  
  
• Natural Ventilation and Daylighting: The open-air design leverages natural ventilation and lighting, reducing electricity use.
  
  
• Water Conservation: Rouse Hill employs a stormwater management system that filters water for irrigation, reducing water waste.

Rouse Hill ensures that tenants actively contribute to these environmental goals through green lease clauses, strengthening operational efficiency and property value.

Eastern Creek Quarter
Eastern Creek Quarter, developed by Frasers Property Australia, is another centre demonstrating the value of green leases. Sustainability features include:

• Solar Power Generation: A large solar panel installation generates renewable energy for the centre.
  
  
• Eco-Friendly Materials: Sustainable materials were prioritised in the construction, reducing the property’s environmental footprint.
  
  
• Smart Waste Management: Recycling and composting facilities help tenants manage waste responsibly.
  
  
• Biodiversity Initiatives: Landscaping with native plants supports local biodiversity, creating a pleasant environment while enhancing sustainability.

With green leases, Eastern Creek Quarter aligns tenant and landlord goals, ensuring all parties are committed to a sustainable future.

The Bottom Line: A Win-Win for Landlords and Tenants

Green leases not only support environmental goals but also offer financial and operational advantages, contributing to the following:

1.  Cost Savings: Shared energy and water conservation reduce operational costs.
2.  Improved Tenant-Landlord Relationships: Shared goals foster collaboration, which can improve tenant retention.
3.  Appealing to Eco-Conscious Consumers: Sustainability-focused properties attract more foot traffic from eco-conscious shoppers.
4.  Future-Proofing Properties: Green leases position landlords and tenants for upcoming regulatory changes and investor demands.

Conclusion

As consumer and investor preferences increasingly favour sustainability, green leases—also known as sustainable leases—are becoming a defining feature of successful retail shopping centres. Centres like Rouse Hill Town Centre and Eastern Creek Quarter show how green leases deliver environmental benefits and attract retailers. Green leases represent a holistic approach to property management and development, fostering partnerships that align with the growing demand for sustainability, enhancing property value, and creating vibrant, wellness-oriented, eco-friendly retail spaces for their communities.