Why the ‘green premium’ is pushing up rentals for Indian REITs

The definition of prime real estate in India is evolving. For decades, a property’s value was dictated by its PIN code and square footage. However, a new metric is fast taking over the conversation: its sustainability quotient. What was once merely a Corporate Social Responsibility (CSR) checkbox has become a primary driver of rental yields and occupancy, as institutional tenants increasingly view ‘green’ as a non-negotiable standard rather than a luxury.

According to the 2025–26 CREDAI-Colliers sustainability report by the Confederation of Real Estate Developers’ Associations of India (CREDAI) and Colliers India, green-certified office inventory in India is projected to reach 700 million sq ft by 2027. More importantly, nearly 80–85% of all new office leasing in 2025 took place in green-certified buildings. For the modern investor, this trend is not just an environmental win. It is increasingly seen as the foundation of a ‘green premium’ that directly boosts rental yields.

The rise of the ESG-first tenant

As the market matures, the profile of the ‘ideal tenant’ has also evolved. Global Capability Centres (GCCs) and Fortune 500 companies, which now account for a significant share of India’s Grade A office demand, operate under strict international mandates to reduce Scope 3 emissions. For these global firms, leasing space in a LEED-certified or Net Zero building is often a compliance requirement.

This flight-to-quality is not just a preference but a structural necessity. As multinational giants consolidate their footprint, they are vacating older, legacy buildings in favour of ‘Next-Gen’ campuses. This mass migration has created a supply-demand imbalance that favours landlords of sustainable assets.

This demand-supply gap has created a measurable rental advantage. Sustainable buildings are now commanding rents 5-10% higher than those of non-certified buildings on average. In high-demand markets like Mumbai and Bengaluru, this premium can climb even higher, with some eco-certified assets fetching up to 24% above the market baseline, according to market estimates.

Bringing down costs with operational efficiency

The financial appeal of green buildings extends beyond just top-line rent. These assets are engineered for operational efficiency, which significantly lowers the overall cost of ownership and management. This includes:

Energy and utility savings: Advanced energy-efficient HVAC systems and IoT-enabled smart lighting can reduce power bills.

Occupancy resilience: Green buildings consistently outperform the market in terms of tenant stickiness. Occupancy rates in eco-certified portfolios typically hover between 80–90%, whereas non-certified assets often range from 65–85%, according to the same CREDAI-Colliers sustainability report.

These efficiencies compound the property’s overall valuation. When a building consumes less water and electricity, its operating margins improve, allowing the REIT to maintain a healthier balance sheet even during inflationary periods. Furthermore, smart buildings utilise real-time data to optimise space usage, often allowing tenants to fit more employees into fewer square feet. This is a value proposition that justifies the premium paid on rent.

For a REIT unit holder, these savings and premiums are critical as REITs are mandated to distribute 90 per cent of their net cash flow; every rupee saved on electricity or earned through a green premium flows directly into the unit holder’s pocket as an increased dividend.

Future-proofing for long-term investors

As India moves toward its own Net Zero targets and the Securities and Exchange Board of India (SEBI) tightens Business Responsibility and Sustainability Reporting (BRSR) norms, older, non-compliant buildings face the risk of becoming ‘stranded assets’. These are essentially properties that are difficult to lease and expensive to retrofit.

By focusing on green-certified REITs, investors are effectively future-proofing their portfolios. These assets are better positioned to attract high-quality tenants, secure lower-cost green financing, and maintain high valuations even as environmental regulations become stricter.

Looking ahead

The evolution of the Indian market has brought us to a point where ethical alignment and financial outperformance are no longer at odds. Just as mutual funds made equity accessible, REITs have made it possible to own a stake in the country’s most sustainable infrastructure.

In 2026, the strategy for the discerning investor is clear. The most resilient returns are coming from the assets that respect the environment. As ‘Green’ becomes the gold standard for global tenants, eco-certified REIT portfolios are fast becoming one of the most stable, transparent and ethical ways to participate in India’s urban future.