Dexus says office workers want to come back to cities after long Covid stint working from home

The property giant has diversified into funds and logistics but is so confident that it is ramping up new skyscraper projects.

Companies are expanding their office space requirements after a period of low attendance during the Covid crisis, according to Dexus boss Darren Steinberg. Picture: Britta Campion/The Australian

Office landlord Dexus expects businesses will dramatically ramp up their return to work plans as corporate Australia adopts practices where it learns to live with coronavirus outbreaks.

The company, which delivered first half earnings on Tuesday ahead of expectations, is confident that big tenants will drive the next round of office developments in cities.

Chief executive Darren Steinberg says companies are expanding their space requirements after a period of low attendance during the Covid crisis.

He pointed to rising activity in cities. “In the last couple of weeks, we’ve seen a lot more activity in and around the CBD.”

“The feedback from organisations is that their people are at this time wanting to get back into the office, albeit still with more flexibility, but they are ready to get back to the office.”

The property boss pointed to the longer term shift to back to offices while living with the virus. “Overall the general community has had enough of working from home on a full-time basis,” he said.

On the ground, the landlord is releasing space well as companies return, with Mr Steinberg saying many were taking a bit more space as their density per person had increased in their buildings.

“There’s also been a lot of focus on breakout rooms and meeting and collaboration spaces,” he said, with some also looking at less desk sharing.

Dexus stuck to its distribution guidance of at least 2 per cent growth this financial year, after a strong first half.

“There’s still a lot of uncertainty, both here and globally with regard to business confidence and the virus. And we also have geopolitical risk out there with what’s going on in Europe,” Mr Steinberg said.

Dexus is bullish about prime office developments and will kick off its $2.1bn Waterfront Brisbane project this year with a tower for software giant Atlassian at Sydney‘s central station also planned to kick off.

The company has also stepped up its funds management unit and now controls about $25bn worth of funds, after buying the APN platform and picking up the management of an AMP fund.

Dexus has grown logistics to almost a quarter of its portfolio and has an extensive workbook that will take its holdings in this area to $11.7bn.

Mr Steinberg said in infill markets in major cities the company had reaped substantial rent increases particularly in Sydney and Melbourne.

The company flagged it would bring in partners on its major developments as part of its strategy of building its own assets, rather than competing in the hot market.

Dexus has turned in an 82 per cent jump in profit to $803.2m for the six months to December as its office towers performed, although the omicron crisis prompted some relief for rental tenants. The profit rise was mainly driven by net revaluation gains on investment properties of $486.2m.

In a busy period, Dexus also raised $1.3bn of new equity across its funds management business, secured development precommitments at Waterfront Brisbane and completed a heavy run of industrial development leasing.

“Despite impacts from the pandemic, it has been an active start to the year with growth in our funds management business, continued leasing activity, as well as new acquisitions and selective asset sales,” Mr Steinberg said.

Adjusted funds from operations, a measure of earnings, fell 2.4 per cent to 28.1c per security from a year earlier, and a distribution of 28c per security, down 2.8 per cent. This was primarily driven by lower trading profits of $21.6m but rent collections remained strong at 97.9 per cent and the group was geared at just 31.1 per cent.

Dexus has pushed into funds management but its main operations are faring well with occupancy of 95.1 per cent in offices and 98.6 per cent for its industrial portfolio.

JPMorgan analysts said the result looked stronger than expected with the group well positioned to come in ahead of consensus forecasts this financial year.

Jarden analysts said Dexus was doing a lot but it was not necessarily manifesting in the share price, as the market remains sanguine on office exposure.

Mr Steinberg said the company had expanded its funds business and diversified its portfolio and was confident of hitting guidance with distributions continuing to be paid out in line with free cash flow.

Dexus shares were up 2.4 per cent to $10.40 on the ASX at close.