M-REITs expect ESG to shape future property valuations, says Knight Frank Malaysia

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Highlights

Most of the 18 M-REIT respondents in Knight Frank Malaysia’s report expect ESG factors to influence future asset valuations.
Only 28% of M-REITs currently have more than 40% of their gross floor area aligned with green building standards, highlighting the ESG implementation gap.
78% of respondents said the key decarbonisation challenge is balancing long-term investment with short-term distributions per unit, while financial incentives are still considered insufficient.

This article was translated from the original. Read the original version by our correspondent here.

ESG drivers and decarbonisation challenges

As reported by The Edge Malaysia, citing Knight Frank Malaysia’s report “Climate Resilience in Action: How Malaysian REITs Are Responding to a Changing Risk Landscape”, most of the 18 M-REIT respondents expect ESG factors to influence asset valuations in the future. According to the 2026 M-REIT ESG Survey, conducted in collaboration with the Malaysian REIT Managers Association (MRMA), regulatory compliance, asset-level financial performance affected by carbon pricing, and occupier demand were identified as the key drivers of ESG adoption over the next five years.

Knight Frank Malaysia group managing director Keith Ooi said ESG is increasingly being integrated into acquisition decisions, asset management strategies and long-term portfolio planning, although there is still room to improve asset certification levels. He said only 28% of M-REITs currently have more than 40% of their gross floor area (GFA) aligned with green building standards, highlighting the gap between boardroom and organisational priorities and on-the-ground implementation.

The report also emphasised that key decarbonisation challenges include the need to balance long-term decarbonisation investment with short-term distribution per unit (DPU) expectations, cited by 78% of respondents. Other barriers include tenant resistance or low engagement and physical or structural constraints, each cited by 50% of respondents, as well as limited availability or quality of asset-level ESG data, at 33%, and ESG factors not yet being adequately considered by investors in their investment decisions, at 17%.

Knight Frank Malaysia ESG manager Sophia Halim said 56% of participants reported that financial incentives from green or sustainability-linked financing remain insufficient to accelerate decarbonisation investment across M-REIT portfolios. She said financial institutions have an opportunity to reward measurable ESG performance more clearly, helping improve investment returns, support long-term portfolio decarbonisation and encourage broader adoption of climate resilience initiatives.

In presenting the report’s key findings, she also noted that M-REITs are now implementing on-site energy efficiency measures and renewable energy, providing tenants with green refurbishment guidance, and introducing green leases to manage decarbonisation risks.

Implications for Malaysia’s REIT market

Michelle Tog, senior vice president of Corporate Governance and Sustainability at Bursa Malaysia, said climate data becomes useful for decision-making only when it informs asset management priorities, investment planning and portfolio resilience. She said the value of assessing physical climate risks for a REIT goes beyond the assessment itself when the findings are used to identify exposed assets, the adaptation measures required, the amount of investment needed and the timeframe for implementation.

This position shows that ESG considerations are increasingly moving beyond basic compliance to become a factor in asset value and capital strategy across the local REIT industry. The report launch in Kuala Lumpur concluded with a panel discussion bringing together industry leaders from MRMA, Sunway REIT Management Sdn Bhd, Alpha REIT Managers, AmREIT Managers Sdn Bhd and Knight Frank Malaysia, reflecting the sector’s broad focus on climate resilience and long-term portfolio performance.

In our previous coverage of the launch of Menara Asia’s Menarabena platform, we explained how digitising the construction supply chain makes it easier to match contractors with suppliers while bringing together certificate, documentation and product compliance information. The article also discussed collaboration with CIDB Holdings through the Information Centre in Shanghai to speed up approval and certification processes, as well as the assertion that digital transformation must go hand in hand with compliance with standards set by regulators.

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