This article is from the Australian Property Journal archive
AUSTRALIA’S largest office landlord, Dexus, is a little more optimistic about the commercial property market as most of the country begins a long recovery from the early stages of the pandemic, but still holds concerns for the Melbourne.
The demand outlook has “improved from a few months ago with most lead indicators up” when compared to the June quarter, it said in its quarterly update.
Dexus said a “period of subdued demand is expected in the short term”, noting that business confidence, while well up from May, remains below average, as do job advertisements despite similarly bouncing back with a 7.8% in September. It noted employment in white collar industries was down by only 0.2% in the year to August, helped by growth in the public and finance sectors.
“Despite the disruption caused by the pandemic, it is pleasing to see signs of life and activity continuing in our core markets,” Dexus executive general manager, office, Kevin George said.
An increase in enquiry and leasing activity during the quarter were recorded, and face rents have held across Sydney and Melbourne.
“We are seeing tenant enquiry in Brisbane and Sydney improving, driven primarily by companies in the tech, financial and professional services sectors as well as government seeking to upgrade their office space requirements,” George said.
“Notwithstanding, we believe the Melbourne office market will be challenging and given our near-term expiries in this market, we are focused on minimising the impact across our portfolio.”
George said the Netwealth lease at 180 Flinders St in Melbourne is “an example of a successful business taking a longer-term view and positioning themselves for growth post the pandemic despite the current restrictions in that market”.
Some 53,600 sqm of office space was leased across 63 transactions in the core portfolio and at development projects underway or completed. Portfolio occupancy dipped to 95.4% from 96.5% over the three months, but weighted average lease expiry inched upwards to 4.3 years and average incentives were down from to 16.8% to 17.1%.
In August, Dexus said it was expecting office vacancies to rise in the major CBD markets as the pandemic forces businesses to reassess their use of floorspace. Its full year net profit fell 23.3% to $983 million, largely due to the resulting heavy pressure on office property values.
“We continue to operate in an uncertain environment, with no vaccine and the economy in recession, and still face significant challenges over the coming year as a result of border closures and government restrictions. While the economy will inevitably recover, the timing of the recovery remains unknown,” chief executive Darren Steinberg said yesterday.
“We also have multiple income streams from our expanding funds management platform and trading profits, and the business is underpinned by our strong balance sheet.”
Dexus this week announced it had taken a $446 million step further into the healthcare property sector, joining forces with its Healthcare Wholesale Property Fund to acquire the Australian Bragg Centre in Adelaide, also known as SAHMRI 2. Steinberg flagged further forays into the healthcare sector for the listed property giant with the announcement.
The Dexus Wholesale Property Fund exchanged contracts to sell the 22-level A grade tower at 452 Flinders St in Melbourne for $454 million, representing an 11% premium to June’s book value.
The group’s industrial portfolio occupancy slipped to 94.8% due to a vacancy at The Mill in Alexandria. Some 87,788 sqm was leased across 25 transactions.
Dexus expects full year distribution per security consistent with FY20’s 50.3 cents, assuming there is no reinstatement of any major lockdowns.
