“While Dexus should be more resilient in the context of office portfolios, we believe it is not immune to market movements in rent driven by a reduction in demand,” the analysts said in an investment note.
“In our previous research, we indicated office rents are expected to decline 15-25 per cent due to cyclical impacts as unemployment increases. This has already been evidenced by Sydney CBD vacancy increasing to 7.5 per cent over the last six months to June 30, 2020.”
They said the biggest concern for Dexus is the medium-term structural shift by office tenants.
“As structural headwinds continue to progress, working from home and decentralisation, we expect the pace of rental declines in the CBD to accelerate beyond the cyclical only impacts. As a proxy, every 1 per cent increase in vacancy has historically resulted in a about a 6 per cent decline in net effective rents.”