Landlord Dexus says that the return to work is gathering pace as companies call people back and confidence among workers builds.
Landlord Dexus says that the return to work is gathering pace as companies call people back and confidence among workers builds.

Vaccines key as confidence revives offices: Dexus

Office giant Dexus believes the roll out of the COVID-19 vaccines will help boost physical occupancy across city offices and called out the economic recovery as employment grows and house prices lift, driving a rebound in business and consumer confidence.

The landlord has shrugged off concerns that large companies will slash their spaces in the wake of the pandemic and is striking fresh leasing deals.

"With the Australian economy in recovery mode, we are optimistic about the opportunities that are before us," Dexus chief executive Darren Steinberg said.

He said that for every company that is looking at cutting back their space, there were other companies looking to grow.

"It's part of a normal business cycle and successful companies that are doing well are looking to take on more space, or to rejig their existing space to fit a post COVID environment," he said.

Dexus said tenant inquiry and activity in its office portfolio had been strong particularly for smaller tenancies, and larger occupier briefs were starting to emerge.

Dexus completed more leasing in the quarter and tenants chased high quality spaces in the CBD assets. It did 108 leasing transactions across 46,703sq m in offices with occupancy hitting 95.4 per cent.

Office occupancy reduced to 95.4 per cent but average incentives bumped up to 24.6 per cent, from 22 per cent. The company also saw an increasing level of inquiry in Sydney and Melbourne.

But it warned that challenging market conditions would see incentives remain elevated for the near term despite some flat lining being reported in market averages.

The company also a busy quarter in office sales, as well as bulking up its funds management and health holdings.

Mr Steinberg pointed to the portfolio's resilience and Dexus has diversified its funds management business, and is advancing its development pipeline.

The company is looking to new fields and bid on the $3.8bn logistics property portfolio that was sold by private equity group Blackstone to Asian player ESR.

Mr Steinberg said the company was upgrading its industrial holdings and it has about $7bn on its platform with it likely to grow exponentially over the coming 12 to 18 months. "And we're actively in the market continuing to buy industrial on a regular basis," he said.

It also leased 117,747sq m of industrial space across 37 transactions in the industrial portfolio, increasing occupancy to 97.8 per cent.

Dexus won over investors in a $5.4bn AMP Capital fund that agreed to a merger with its $10.1bn diversified fund and also expanded in healthcare and is looking to make opportunistic plays.

Mr Steinberg said there was a natural evolution of the funds business which has hit about $21bn. There was momentum in the funds platform and it would also add capital partners to back developments, he said.

"The resilience in values for quality assets has also provided us with the confidence to investigate opportunities to allocate capital, using our balance sheet to enhance prospects for driving growth. We are seeing opportunities across the various asset classes of industrial, healthcare and office," Mr Steinberg said.

Dexus stuck to its guidance of achieving a fiscal 2021 full year distribution per security amount of 50.3 cents, consistent with fiscal 2020, subject to no further lockdowns.

Originally published as Vaccines key as confidence revives offices: Dexus