Tenants are leading the green property revolution in 2025 – are investors keeping up?

Handelsbanken Insights Blog

By Richard Winder, Head of Sustainability

Published: 27 June 2025
Reading time: Three minutes

A surprising force is driving demand for sustainable property: tenants. Landlords and investors need to be on the front foot to reap the benefits.

“Momentum is building”

The UK's property sector is undergoing a significant transformation, and it's not just government policies or rising costs driving the change. A powerful, unexpected market force is stepping in: tenants are leading the green property revolution. They are no longer passive when it comes to energy efficiency; instead, they are sending clear investment signals and accelerating the retrofit economy faster than legislation alone can.

Handelsbanken’s 2025 Property Investor Report, based on a national survey of 200 large portfolio landlords, reveals a compelling shift:

92% of large portfolio landlords think tenants are willing to pay more for greener homes.
77% of landlords have received direct requests for sustainability upgrades.

This bottom-up pressure marks a crucial turning point. For too long, sustainability in property has often been viewed merely as a compliance task – meeting minimum standards and delaying costs. However, today, landlords are increasingly finding that the strongest incentive to upgrade isn't just regulation, but tenant retention.

Momentum is clearly building, with over half (57%) of landlords reporting tenant demand for EV charging points, and 47% reporting demand for higher Energy Performance Certificate (EPC) ratings of C or above.

These aren't isolated incidents; they represent the early signs of a nationwide shift in tenant expectations. In urban areas, green features are becoming critical factors in how quickly a property lets, while in regional markets, they can even help landlords maintain rents when the broader economy softens.

Why now? Three structural forces converging

This surge in tenant demand is driven by a convergence of three key structural forces:

Rising energy bills: Living in an inefficient property can cause significant financial stress for many tenants. This pragmatism is driving demand for essential upgrades like insulation, solar panels, and batteries, with heat pumps expected to follow suit.
Generational shifts: For younger renters, sustainability is no longer a premium perk but is becoming part of the baseline expectation, particularly in sectors like student accommodation.
Rising consumer awareness: What was once a niche concern for "engaged customers" is now standard. Today’s tenants routinely inquire about EPCs, emissions, and how a building supports their sustainable lifestyle.

Ventilation unit on green and flowery property

Investor confidence is rising and shifting

Despite macroeconomic challenges, investor confidence remains resilient and is increasingly focused on sustainability. Our report found that 54% of landlords surveyed plan to expand their portfolios in the next 12 months, and 80% expect asset values to rise.

Investors are recognising that sustainability isn't just a cost; it's a competitive advantage. A property that is more efficient and "future-proofed" is more attractive, drawing tenants who are both able and willing to pay more for these features. Beyond higher rental income, it also lowers operational costs and insulates property value against future regulatory changes.

This confidence is reflected in rising landlord spending on sustainability. The average budget allocated for upgrades jumped by 20% to £128,000 in 2024, up from £106,000 in 2023, signalling a clear belief in retrofitting as a path to resilience and yield. Investor behaviour is also shifting geographically; while London remains desirable, areas like the East of England (42% of investors) and the North-East and Cumbria (31% of investors) are gaining focus due to growing demand for efficient homes and attractive yields.

Rethinking what 'prime' means: the green dividend

This evolution is fundamentally challenging traditional notions of property value. While location, size, and style remain important, energy efficiency is increasingly matching their significance. A once-premium postcode may no longer compensate for issues like draughty lodgings, sky-high energy bills, or EPC ratings that fail to meet tenant expectations.

The "green dividend" is emerging, where tenants are willing to pay more for homes that not only cost less to run but also align with their environmental values. This phenomenon is reshaping critical aspects of the property market:

How landlords allocate capital
How tenants choose homes or business locations
How investors price risk.

This rise in tenant demand is evident across both residential and commercial properties. In the commercial sector, particularly for office space in major cities like London, sustainable features are commanding a high premium. Commercial tenants face their own pressures from shareholders, customers, employees, and public commitments to enhance operational efficiency, work environment, and climate impact.

Crucially, unlike most government incentives or policy mandates, tenant demand is immediate, sustained, and accelerating. While further policy measures continue to work their way through the system, it is this rising tenant demand that is actively driving change in the marketplace today, fundamentally reshaping the economics of retrofit from the ground up.

Future-proof your portfolio

The message from the market is clear: it's time to future-proof your property portfolio. The law is no longer keeping pace with the rapid evolution of tenant expectations. This means that merely "standing still" in terms of sustainability has effectively become "falling behind". Investors who adapt will find themselves well-positioned in this evolving green property landscape.

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