Thailand Taxonomy: What It Means for Rental Real Estate

Chakrapan Pawangkarat

Head of Property and Asset Management

JLL Thailand

20 March 2025

Introduction: A Green Shift in Real Estate

The Thai government is accelerating its push towards sustainability, with real estate playing a crucial role in this transition. The Thailand Sustainable Taxonomy, launched to classify economic activities based on their environmental impact, is now shaping the future of investment, development, and property management.

For rental real estate, the taxonomy introduces new challenges and opportunities. It influences financing, valuation, tenant demand, and compliance requirements. This article explores what Thailand’s Taxonomy means for rental property owners, investors, and managers, and how they can adapt to this evolving landscape.

Understanding Thailand’s Taxonomy

The Thailand Sustainable Taxonomy is a framework that classifies economic activities into three categories:

1. Green – Environmentally sustainable activities (e.g., buildings with net-zero energy, LEED or TREES-certified properties).

2. Amber – Transitional activities that reduce carbon emissions but are not yet fully sustainable (e.g., partial energy efficiency upgrades, hybrid cooling systems).

3. Red – Activities that do not align with sustainability goals (e.g., conventional buildings with high energy consumption and no sustainability measures).

Initially, the taxonomy focuses on energy and transport, but real estate is indirectly affected, as buildings are among the largest energy consumers in Thailand.

Impact on Rental Real Estate

1. Green Financing & Investment Opportunities

What’s Changing?

• Banks and financial institutions are increasingly tying loan approvals and interest rates to sustainability factors.

• Green buildings may qualify for preferential financing, while non-compliant properties could face higher borrowing costs.

What It Means for Rental Property Owners

• Upgrading to energy-efficient systems (e.g., smart HVAC, solar panels) can unlock better loan terms.

• Institutional investors seeking ESG-compliant assets may favor green-certified properties, increasing their value.

Action Plan:

• Consider green bonds or sustainability-linked loans for property upgrades.

• Work with financial institutions that offer incentives for energy-efficient retrofits.

2. Rental Market Demand: Tenants Prefer Green Buildings

What’s Changing?

• Corporate tenants (especially MNCs and large Thai firms) have ESG policies requiring sustainable office and retail spaces.

• Residential renters, especially younger generations, prioritize energy-efficient, healthy, and sustainable living spaces.

What It Means for Landlords

• Properties that fail to meet green standards may become less attractive to high-value tenants.

• Sustainable buildings can command higher occupancy rates and rental premiums.

Action Plan:

• Invest in energy-efficient lighting, insulation, and HVAC systems to appeal to tenants.

• Market the sustainability features of the property (e.g., water conservation, air quality improvements) to attract eco-conscious renters.

3. Regulatory Pressure & Compliance Costs

What’s Changing?

• Thailand’s Energy Conservation Building Code (ECBC) and green certification programs are becoming more stringent.

• New regulations may introduce carbon reporting requirements for commercial properties.

What It Means for Rental Property Managers

• Older buildings may face penalties or increased operational costs if they do not meet new efficiency standards.

• Compliance with the Thailand Taxonomy could become mandatory for large-scale landlords and REITs.

Action Plan:

• Monitor upcoming real estate regulations related to energy and sustainability.

• Plan gradual retrofits to avoid sudden, costly compliance issues.

4. Property Valuation & Asset Depreciation Risks

What’s Changing?

• Real estate valuation methods are evolving to include sustainability factors.

• Non-compliant buildings may experience faster depreciation and lower resale values.

What It Means for Investors

• Green-certified buildings will likely hold their value better over time.

• Landlords may need to adjust asset management strategies to maintain property value.

Action Plan:

• Conduct sustainability audits to assess and improve a building’s green performance.

• Prioritize investments in high-efficiency HVAC systems, renewable energy integration, and sustainable materials.

How to Adapt: A Roadmap for Rental Property Owners & Managers

1. Assess Your Current Portfolio

   • Identify properties that fall into the red or amber categories under the Thailand Taxonomy.

   • Conduct energy efficiency audits to pinpoint areas for improvement.

2. Implement Green Upgrades

   • Prioritize energy-efficient air conditioning, LED lighting, and insulation.

   • Explore rooftop solar or district cooling to reduce energy costs.

3. Leverage Financial Incentives

   • Seek green loans, tax incentives, or subsidies for sustainable property improvements.

   • Work with ESG-focused investors and real estate funds.

4. Educate Tenants & Market Sustainability Features

   • Highlight energy savings, better air quality, and eco-friendly features in marketing materials.

   • Offer incentives for tenants who adopt sustainable practices (e.g., reduced rent for green-certified offices).

5. Stay Ahead of Regulations

   • Monitor changes in Thailand’s real estate sustainability policies.

   • Ensure compliance with emerging carbon reporting and energy efficiency standards.

Conclusion: Sustainability as a Competitive Advantage

The Thailand Sustainable Taxonomy is reshaping the rental real estate market. While it presents compliance challenges, it also creates opportunities for forward-thinking landlords and investors.

By proactively upgrading properties, securing green financing, and catering to eco-conscious tenants, rental property owners can enhance asset value, reduce costs, and stay competitive in Thailand’s evolving real estate landscape.

The transition to sustainable real estate isn’t just about meeting regulations—it’s about future-proofing investments and unlocking long-term growth. Are you ready for the shift?

Acknowledgement:

"This article was generated with the assistance of ChatGPT, an AI language model by OpenAI, and subsequently reviewed and edited by the author."