Dexus enjoys $1.1b windfall

Dexus enjoys $1.1b windfall

22 June 2018

Surging rents and demand for commercial real estate have added $1.13 billion to the portfolio valuation of Australia’s largest listed landlord, Dexus, in the past year.

That boost extends its first-half revaluation gains. Dexus now expects to record a $1.13 billion gain or a 9.3 per cent lift in the book values of its diversified office and industrial portfolio over the past 12 months.

Darren Steinberg, CEO of Dexus said: “It is pleasing to see higher market rents being reflected in our latest round of valuations across many of our assets. In addition, valuers have taken into account recent transactions where there has been no softening in the underlying investment demand for good quality office and industrial properties which continue to attract a variety of domestic and offshore buyers.”

“It’s great to see the strong market conditions on the ground in Sydney and Melbourne actually being reflected in the valuations now,” Mr Steinberg told The Australian Financial Review.

The valuation uplift was driven primarily by the Sydney office portfolio where capitalisation rates have compressed further, and the buoyant leasing market has delivered higher market rents, which for the Dexus office portfolio drove 58% of the valuation uplift.

In Sydney, market rent increases drove a $39.7 million increase in the Australia Square complex and a $24.5 million increase in 1 Farrer Place.

Grosvenor Place increased by $59.0 million as a result of market rent increases combined with a 12.5 basis point firming in the capitalisation rate to 4.88%.

Capitalisation rate firming also occurred in the Melbourne and Brisbane markets.

In the industrial portfolio, the increase in market rents and further capitalisation rate compression in the core industrial markets of South Sydney, Western Sydney and Western Melbourne led to valuation increases.

Darren Steinberg said: “As a result of continued investment demand, combined with strong market fundamentals in Sydney and Melbourne and improving conditions in Perth and Brisbane, we expect further cap rate compression of circa 10 to 15 basis points over the next 12 months.”

The windfall for Dexus’ portfolio will be closely watched as Investa Office Fund, undertakes its own revaluation process after receiving a $3.1 billion takeover offer from Blackstone.

Major transactions are putting further pressure on cap rates. Just this month Mirvac’s move to take over the remaining stake in Westpac Place – it assigned its pre-emptive right to ISPT – in an $850 million deal was struck on a rate of 4.5 per cent or less.