Dexus Property Group has forecast a turnaround in the national office lease market in the coming 18 months because of a return of confidence among business and a flight of new tenants from the suburbs into the city.
The group, which has an indicative takeover offer on the table for rival Commonwealth Property Office Fund, has predicted it would deliver on its guidance for funds from operations for the year to June 30, 2014, of 8.15¢ per security and a distribution of 6.12¢ per security.
The figures exclude any upside from the on-market securities buy-back or the 14.9 per cent economic interest in CPA.
Dexus chief executive Darren Steinberg said at the group's September quarterly update on Tuesday that the offer for CPA remained in abeyance after the independent directors of CPA's manager, Colonial Managed Investment, said the proposal did not provide a compelling value proposition to CPA unitholders and that they would not grant access to due diligence material or progress the proposal at this time.
"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."
The fund manager of CPA, Charles Moore, will release his quarterly update on Wednesday. CPA has assets valued at $3.7 billion under management and a successful takeover would give Dexus close to 30 per cent exposure to the national office sector.
The property analysts for Commonwealth Bank's institutional banking and markets business said they would continue to keep an eye on business confidence, which has been given a not-unexpected post-election kick.
"Our sense is, however, office conditions have troughed. Predictably there is no update on the CPA transaction.
"We suspect management will talk the transaction down ... and try to set low expectations for another bid," they said.
Dexus executive general manager, office and industrial, Kevin George, said at Tuesday's update the group was encouraged by increased inquiry across the portfolio, particularly in the premium market, which has been lagging.
Mr George said that during the September quarter 32,557 square metres of office space was leased in 45 transactions, including securing heads of agreement over 11,814 square metres.
The major successes were the five-year lease extension with IBM at Southgate, Melbourne, for 11,485 square metres.
In general, the office portfolio capital value increased $13.9 million, reflecting a 3 per cent increase across these properties compared with prior book values.