Dexus say office tower slump over for top assets but pain still to come at lower end

Dexus chief executive Ross Du Vernet says the property cycle is improving.

Office landlord and funds manager Dexus says the market is on the way back even as the company deals with redemptions and a fight over the ownership of Melbourne airport in the funds arm.

Dexus chief executive Ross Du Vernet said the market was past the inflection point for owners of high-quality assets across the portfolio.

“There’s still probably more pain to come for secondary assets and secondary markets,” he said.

While the company has been selling assets after being hit by redemptions in some large wholesale funds – partly as investors recalibrate after Dexus took over the local AMP real estate operation – Mr Du Vernet said that 83 per cent of earnings were coming from its investment portfolios.

“While funds management is a really important part of how we think about capital-efficient growth, it’s not the main driver of our earnings … over the next couple of years,” he said.

Mr Du Vernet said investors were also backing the higher-­returning strategies where the company is raising funds.

Dexus indicated that it would continue to defend its position and those of its funds in the company that owns Melbourne airport. They have a 27 per cent stake but other investors, who include some of the country’s largest super funds, are trying to force them to sell out.

Dexus said it was “vigorously defending” its clients’ interests and it has disputed the validity of a notice compelling it to sell its ­interest. A court hearing is slated for November.

The company’s $2.5bn Waterfront Brisbane project has been hit by delays, with bad weather and complexities with certain in-ground construction works driving completion back to the end of 2028. Mr Du Vernet said the project was through the worst of its build and he was confident that the top end of Brisbane’s office market would be the country’s best, benefiting the economics of the project which is currently under-rented in a market with limited supply.

Dexus said it delivered on its fiscal 2025 guidance, with Adjusted Funds From Operations of 45c per security and distributions of 37c per security.

The company had office occupancy of 92.3 per cent, above the average across Australia, as tenants chased higher-quality options, and it said incentives were declining.

Across the portfolio, valuations increased in the second half of the year, marking an inflection point in the valuation cycle.

The trust’s net profit after tax of $136.1m was a turnaround on a $1.58bn loss in 2024, which was driven by stabilising capitalisation rates, driving much lower fair valuation losses.

The company has sold down about $1.1bn of assets to keep its gearing in check as it undertakes major projects.

It also sold $2.7bn across its funds empire. The Dexus Wholesale Property Fund faces selling down more properties, while the Dexus Wholesale Shopping Centre Fund is backing buying after being forced to sell its stake in the Macquarie Centre.

Mr Du Vernet said that despite challenges for the past few years, the market was past the worst, with valuations “turning positive in the second half”.

“Now is an attractive time to invest in real assets. We expect the next phase of the cycle to be driven by fundamentals, and our platform of high-quality assets and deep expertise positions us well to deliver.”

Dexus expects AFFO of 44.5c to 45.5c per security and distributions of 37c per security.