Flight to city boosts DEXUS

DEXUS Property Group has forecast a turnaround in the national office leasing market in the next 18 months due to a return of business confidence and a flight of new tenants from the suburbs into the city.

The group, which has an indicative takeover offer on the table for Commonwealth Property Office Fund, forecast it would deliver on its guidance for funds from operations for the the year ending June 30, 2014, of 8.15¢ a security and a distribution of 6.12¢ a security. The figures exclude any upside from the on-market share buyback or the 14.9 per cent interest in CPA.

At the group's September quarterly update on Tuesday, DEXUS chief executive Darren Steinberg said the offer for CPA remained in abeyance after the independent directors of CPA's manager, Colonial Managed Investment Ltd, said the proposal did not provide a compelling value proposition to CPA unitholders and they would not grant access to due diligence.

"We acquired our initial interest in CPA at an attractive price and remain patient and disciplined," Mr Steinberg said. "We continue to be comfortable with the investment in CPA."

CPA fund manager Charles Moore releases his quarterly update on Wednesday. CPA has $3.7 billion of assets under management and a successful takeover would give DEXUS close to 30 per cent exposure to the national office sector.

Property analysts for the Commonwealth Bank said they would continue to keep an eye on business confidence, which has been given a predictable kick after the federal election.

"Our sense is office conditions have troughed. Predictably, no update on the CPA transaction. We suspect management will talk the transaction down ... and try and set low expectations for another bid," the bank's analysts said.

DEXUS executive general manager for office and industrial Kevin George said the group was encouraged by increased enquiry across the portfolio, particularly in the premium market.

"With an improving profit outlook and an uptick in business confidence post the election outcome, we expect this enquiry to translate into leasing over the next 12 months," Mr George said.

Mr Steinberg said the more attractive rents for higher-grade office space has seen businesses come in from the suburbs. "There are new tenants looking to a city address and are taking advantage of the current rental environment," Mr Steinberg said.