Dexus Property, the country’s biggest office landlord, has seen its earnings boosted by the buoyant market conditions, with management saying it has never seen a busier time for leasing deals.
But chief executive Darren Steinberg tempered his outlook, saying the uncertainty ahead with elections and economic trade issues will cause headwinds in the coming months.
”I don’t think Kevin [George, executive general manager, office] and I have ever seen a busier Christmas/January period for signing leases across the country and that is despite everything that’s going on in both global and local economies,” Mr Steinberg told property analysts.
”But I think you have to be cautious with everything that’s going on around the globe right now. We’ve got both federal and state elections in Australia and traditionally [office] demand does slow, although we haven’t seen any sign of it as yet.
”But there’s no reason why it won’t … and then obviously globally you’ve got trade wars going on and you’ve got Brexit happening. So these kind of events tend to dampen demand.”
Mr Steinberg said Dexus had seen business and consumer confidence numbers coming through recently, ”which are fantastic, not withstanding every Monday we sit down, we go through the leasing and that’s why we are cautious”.
For the first half of the 2019 financial year ending December 31, 2018, the group reported a net profit after tax of $726.4 million, down 27.2 per cent, primarily due to net revaluation gains of investment properties being lower than the previous corresponding period.
The funds from operation, the more accurate measure for real estate investment trusts, was $353.3 million, up 9.8 per cent on the previous corresponding period. An interim distribution of 27.2¢, up 14.8 per cent on the previous corresponding period, will be paid on February 28.
The results were in line with market expectations, with Moelis Australia saying the figures were ”solid with incentives falling”.
Mr Steinberg said while Sydney and Melbourne office markets were very strong, with close to record low vacancies of about 4 per cent, the resource-centric cities of Perth and Brisbane, were showing signs of activity.
He added that Dexus was working through the pre-emptive contract on the other half of the MLC Centre that GPT Group is selling and a decision as to whether that will be acted upon will be made mid-March.
Mr Steinberg said he expected an increase in asset sales this year as owners assess their portfolios and sell non-core properties.
Reflecting the connectivity between industrial and retail sectors, Dexus has merged the two areas under a new banner. The group said the industrial business continues to benefit from an uptick in logistics and e-commerce demand,
Mr George said the portfolio achieved a total return of 13 per cent, driven both by valuation uplifts and leasing. Occupancy increased to 97.3 per cent from 96 per cent at June 2018, ”driven by leasing in Sydney, our largest core market”.
”In Sydney, we’ve achieved office leasing spreads of +18 per cent driven by continued strength in tenant demand. Leasing also progressed at 100 Mount Street, North Sydney with the development now 84 per cent committed.”
During the period, Dexus secured a prime office development site in the Melbourne CBD, through entering into agreements to acquire adjoining properties at 60 and 52 Collins Street, which, along with the development at 140 George Street, Parramatta increased Dexus’s development pipeline to $2.8 billion.
Dexus chief investment officer, Ross Du Vernet, said the Melbourne acquisitions provided Dexus with a presence in the tightly held “Paris end” of Collins Street in the CBD.
Dexus shares closed up 1¢ to $11.85 per security.