Dexus Property says the arrival of global internet giant Amazon will support the Australian industrial property sector through increased demand for warehouses and logistic sites, which will boost rents for landlords.
Speaking at the Macquarie Conference in Sydney on Tuesday, Dexus chief financial officer Alison Harrop said Amazon would be looking for assets with close proximity to infrastructure, such as ports, rail and road.
Ms Harrop told the conference Dexus was seeing an increase in demand for tenancies from offshore firms such as Dropbox, Facebook, Uber, Wework and Amazon, which have all expanded here.
"Dexus is now initiating contact with entrepreneurial technology groups in the US to understand future office space requirements in Australia," Ms Harrop said.
She added that, on the back of a trip to the US, Dexus has already had leasing success with RocketSpace, and demand from offshore firms was expected to continue to drive office tenant demand, particularly in Sydney and Melbourne.
In the diversified group's third-quarter update, released on Tuesday, Dexus reaffirmed the 2017 underlying funds from operations per security growth of about 4 per cent and financial distribution per security growth guidance of 3.5-4.5 per cent. It is on track to deliver office net property income (NPI) growth of 2.5-3 per cent and industrial NPI growth of 3-4 per cent.
Dexus executive general manager office and industrial Kevin George said the group had benefited from the more active office markets of Sydney and Melbourne, recording average incentives of 11 per cent and 7 per cent respectively.
"Dexus has an opportunity to capitalise on the strength of the Sydney office market, with the majority of its portfolio located in this market. This is expected to be achieved through negotiating favourable terms on the lease expiries located in the Sydney market, which represent 62 per cent of expiries over the next three years," Mr George said.
One deal was securing IOOF at 30 The Bond, Sydney – formerly Lendlease's head office – across 2661 square metres, resulting in only one floor remaining to lease at the building.
Mr George said the group remained of the view rental growth in the Sydney office market would continue as vacancy headed to 4.3 per cent in 2019. Even factoring the supply pipeline in 2020-21, Dexus sees vacancy in Sydney rising to about 7 per cent.