Dexus (Real Estate)

2017 Real Estate Top 100 ranking: 51http://www.dexus.com/

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Manager Details

Dexus

Corporate overview

Dexus is one of Australia’s leading real estate groups, proudly managing a high quality Australian property portfolio valued at €17.3bn1. With more than 30 years of expertise in property investment, development and asset management, we have a proven track record in capital and risk management, providing service excellence to tenants and delivering superior risk-adjusted returns for investors.

We invest only in Australia, and directly own €8.4bn1 of office and industrial properties. We manage a further €8.8bn1 of office, retail, industrial and healthcare properties for third party clients through open-ended unlisted wholesale funds and separate accounts.

The group’s €2.8bn1 development pipeline provides the opportunity to grow both portfolios and enhance future returns. With 1.7m sqm of office workspace across 53 properties, we are Australia’s preferred office partner.

We believe that the strength and quality of our relationships will always be central to our success and are deeply committed to working with our customers to provide spaces that engage and inspire.

Dexus is a Top 50 entity by market capitalisation listed on the Australian Securities Exchange (ASX trading code: DXS).

Investment principles & strategy

Dexus’s strategy is to deliver superior risk-adjusted returns for investors from high quality real estate in Australia’s major cities.

We have two strategic objectives that underpin this strategy:

  • Leadership in office: being the leading owner and manager of Australian office property
  • Funds management partner of choice: being the wholesale partner of choice in Australian property

Leadership in office is an aspiration that is supported by our scale. As the largest office owner and manager in Australia, we have scale that provides many advantages.

Our scale supports the generation of investment outperformance, by providing valuable customer insights and the opportunity to invest in people, systems and technologies that enhance our customers’ experience. It also enhances our ability to find the ideal workspace solution for customers and generate cost efficiencies.

Our objectives of leadership in office and funds management partner of choice complement each other. Our success in the office sector has enabled Dexus to attract investment partners not just in office, but also in the industrial, and healthcare sectors, in turn providing the opportunity to drive investment performance for those clients.

Sector forecasts

Dexus believes there are three main thematics which will define the year ahead.

The first thematic is broad-based economic growth supporting positive occupier demand for space across the office and industrial sectors in Australia.

Within Australia, economic growth is rebalancing between the states with Queensland and Western Australia (WA) forecast to catch up to Victoria and New South Wales (NSW) over the next few years. While buoyed by infrastructure investment, Victoria and NSW will face some additional headwinds in FY19 and FY20 as weakening housing construction drags on employment growth.

Global growth is a positive influence on confidence, but on the downside, the probability of a global trade war has risen. If tariff levels were to escalate, a slowing of Chinese growth could impact Australia.

The second thematic is the low and steady cost of capital which continues to support investment demand for real estate. Transaction volumes remain relatively high and values are mostly firming. While investors should plan for risks to asset pricing as bond yields normalise over the medium term, the risk of a sharp rise any time soon seems low given the economic headwinds described above. Official cash rates are expected to remain flat until late 2019. A steady cost of capital should continue to support investment demand in the short term. While the value cycle appears mature, it so far lacks a catalyst for change.

The third thematic is the growth in e-commerce which is providing double digit growth in deliveries and creating extra demand for warehousing space in the industrial sector. Conversely, conditions in the retail sector are subdued given modest household spending growth and pressure on retailer profitability.

OFFICE: Office markets continue to perform well. Modest levels of supply in Sydney and Melbourne helped push vacancy rates lower to circa 4.5% and we expect further falls over 2019. The outlook for demand is positive in the short term due to solid employment growth and positive business confidence. Net absorption of office space in Australia’s CBD markets was around double the long-term average at 90,000 sqm in the March 2018 quarter.

Effective rents in Sydney and Melbourne are growing strongly at 12.5% and 12.8% per annum respectively. Perth and Brisbane are more subdued with effective rent growth of 2.8% and -0.9% per annum respectively. The outlook is for mild upward pressure on rents in the short term in Sydney and Melbourne, with growth declining on a two to three-year timeframe as new supply materialises.

A key theme for office markets is the growth in small office users as service firms shift to more collaborative, outsourced modes of working and the IT sector continues its mini-boom built on mobile applications, big data, fintech and social media. This shift is driving an increased rollout of flexible workspace offers such as SuiteX by Dexus.

Dexus expects further growth in the main CBD office markets on the back of strong business confidence, expansion of the professional services sector, and a low to moderate supply of new space.

INDUSTRIAL: The Australian industrial sector is in a growth phase with demand running ahead of supply. Demand is expected to remain solid throughout 2019 given population growth and infrastructure investment are supporting economic activity. Sydney, Melbourne, and to a lesser extent Brisbane, are well placed to benefit.

E-commerce is emerging as a significant demand driver as online sales expand at double digit growth rates and online retailers and fulfilment providers seek to increase scale. The launch of Amazon Prime in Australia is expected to act as a catalyst for low-cost express delivery, which requires significantly greater warehousing space in close proximity to customers. E-commerce is still in its early stages of development in Australia compared to overseas and hence there could be considerable future upside.

The outlook for rents is likely to remain positive, particularly in land constrained areas in Sydney and Melbourne.

Demand for investment stock and development sites remains strong and highly competitive due to limited availability of product and strong occupier demand. Land values have risen past previous peaks in key markets in Sydney and Melbourne.

RETAIL: Online retail sales continue to boom in Australia, up 17.2% over the 12 months to May 2018, reaching around 8.3% of the total retail market2. The launch of eBay Plus and Amazon Prime during the March 2018 quarter is likely to further accelerate online penetration in Australia, as cost and convenience of online delivery improves. Retailers are moving to omni-channel models of delivery.

There may be some relief ahead for retailers, as employment growth impacts on wages and retail spending growth benefits from continued low interest rates. However, a softening housing market is likely to prevent spending growth from increasing too much.

The outlook for rents is subdued in the short to medium term, reflecting high occupancy costs and poor retail margins.

Centre performance varies – bottom quartile centres are experiencing higher incentives and negative leasing spreads, while top quartile centres are maintaining metrics. The best performing Australian retail centres are in growing catchments with a focus on convenience, food, entertainment, leisure and services.

HEALTHCARE: The Australian healthcare property sector is substantial and growing; however, it has a limited institutional presence. With an estimated investible universe of €79bn1, the sector is a similar size to the Australian industrial sector.

There are strong demand drivers for the sector, particularly Australia’s accelerating population growth and ageing population. Approximately 50% of total hospital patient days in Australia are represented by people aged 65 years and over, with this age bracket predicted to reach 7.9m by 2050 (3.6m in 2015).

Unlike the US and UK, Australia operates a hybrid public/private health system. Private hospital capacity is critical to supplement the public system, and federal taxation measures are in place to encourage private health insurance participation.

To meet market demand, healthcare providers are evaluating alternative funding methods, including realising the value within their properties, to provide funding capacity for further expansion.

Healthcare properties and their locational drivers share similar characteristics with the office and retail property sectors. However, the non-discretionary demand for healthcare services results in the sector being relatively insulated from economic cycles and provides investors with lower return volatility compared to traditional property sectors.

Dexus continues to see future value from investing in Australian healthcare property and is committed to increasing its unlisted exposure to the sector over the long term.

1 Conversion rate of AUD1/€0.6344 as at 29 June 2018

2 NAB Online Retail Sales Index, May 2018

COMPLIANCE STATEMENT

All information is as at 30 June 2018, unless otherwise stated. This information is issued by Dexus Funds Management Limited, Dexus Wholesale Property Limited and Dexus Wholesale Funds Limited (Dexus).

Information in this profile including, without limitation, any forward looking statements or opinions may be subject to change without notice. To the extent permitted by law, Dexus and its officers, employees and advisers do not make representation or warranty, express or implied, as to the currency, accuracy, reliability or completeness of the information and disclaim all responsibility and liability for it (including, without limitation, liability for negligence). Actual results may differ materially from those predicted or implied by any forward looking statements for a range of reasons outside the control of the relevant parties.

This information is not investment advice and does not take into account the investment objectives, financial situation or particular needs of an investor. It is not an offer of securities or units.

This information is not directed at or intended for any entity (or person) that is located or established in (or a citizen or resident of ) any jurisdiction where its use would be contrary to applicable law or regulation.

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Head Office
Level 25, Australia Square
264-278 George Street
Sydney
NSW
2000
Australia
Company website:
http://www.dexus.com/

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