Weekly Update 6/12/2021

6 December 2021

Welcome to this weeks Property News.

Dexus continues to sell down B Grade office assets to recycle capital into higher return opportunities that exist in their $14.6bn Development pipeline. Last week Dexus sold 383 Kent Street for $385m, and this week the Group sold $201 Miller Street North Sydney for $155m. 201 Miller Street formed part of a larger development play which could provide Dexus with the opportunity to develop a 85,000sqm tower on a site to the rear of 201 Miller Street and adjoining another site the Group owns in Berry Street.

As investors seek to deliver higher returns, groups like Dexus are looking to deploy more capital into the higher risk, higher return investments. In their 2021 Annual Report, Dexus outlined their desire to add 200bps to their return by increasing their exposure to development projects which target a 12%+ IRR on equity and a yield on cost of 5-6%. To do this, Dexus plan to increase their capital allocation to higher risk exposures to as much as 20%.

This week, Qualitas also signalled a move up the risk curve with a $750m capital raising to be deployed into co-investment and finance-warehousing activities, a move beyond their traditional debt based investment strategies.

The move toward higher risk activities should always be taken cautiously and over an extended period of time as cyclical issues can very quick unwind the best laid plans.

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