Global office climate fuelling solid run: Dexus

An artist’s impression of 80 Collins Street, Melbourne.
An artist’s impression of 80 Collins Street, Melbourne.

Office property group Dexus says the office cycle will keep running strongly as tenants in its buildings chase new space and inter­nat­ional investors seek to lift their exposure to towers in Sydney and Melbourne.

The Darren Steinberg-led company believes a series of global forces are flowing through to the local market, and the growth of the financial services sector and rise of health and education tenants were buoying demand.

“We are seeing steady occupier demand plus very strong capital demand for real assets,” Steinberg told The Australian.

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“This office market cycle is certainly not over, with our office portfolio effectively full and the Sydney and Melbourne office market vacancy rates very low.”

Dexus has a limited exposure to co-working tenants and despite WeWork’s worldwide problems, its own co-working business and other specialists’ were still expanding locally.

Dexus also has a rising exposure to technology companies, locking in NBN in North Sydney and planning a major office block at Sydney’s Central Station next to Atlassian’s global headquarters that is expected to draw another top tech company.

Steinberg says similar forces were at work in London, and Australia tended to follow global trends. He also argued that hefty infrastructure spending could drive a lift in CBD markets as they became more accessible from more suburbs.

Dexus is backing this through major developments on the drawing board at Circular Quay in Sydney, the Waterfront precinct in Brisbane and towers at the Paris end of Collins St in Melbourne.

But the company surprised many by announcing an on-­market buyback for up to 5% of its stock, and investors drove up the shares by 3.43% to $12.07.

In a busy quarter, Dexus leased 27,267sqm of office space and 4660sqm of developments.

Just this week Dexus and its wholesale fund agreed terms with lawyers Herbert Smith Freehills for the lease of 10,300sq m at 80 Collins St in Melbourne.

The landlord also leased up 22,691sqm of industrial space across 30 deals.

With a series of office deals in the wings, Mr Steinberg said there would be about 25 basis points of capitalisation rate compression to flow through for quality office properties and at least this quantum for the best industrial assets.

But not all are convinced. Macquarie analysts say under­lying conditions continue to deteriorate in office markets and operating metrics in the office portfolio have begun to flatline.

This article originally appeared on www.theaustralian.com.au/property.