The commercial Code of Conduct will guide real estate investment trust Dexus' (ASX: DXS) negotiations with SME customers as the fallout from COVID-19 restrictions continues to impact both landlords and tenants.
Dexus says it is well placed to support its customers to survive the COVID-19 financial crisis, with a focus on assisting SME tenants in the first instance.
The company, which owns more than $15 billion worth of office and industrial properties, says its city retailer tenants that support the office community have been most impacted by work from home orders.
Dexus says it working with these SME businesses with turnover of less than $50 million and experiencing financial stress as a result of COVID-19 to come to an agreement on rental relief.
The Sydney-based group estimates these tenants represent approximately eight per cent of its total property portfolio income.
While the brunt of the impact on these SME customers has already been felt, Dexus says the shock of COVID-19 will be ongoing.
"In the current environment, office leasing enquiries have fallen and inspection rates have slowed," says Dexus.
"Lead indicators point to a period of uncertainty in the office markets across Australia, with demand across the major CBD markets likely to be patchy in the short term.
"In times of uncertainty, high quality and well leased assets can be expected to hold their value better than lower quality assets due to their appeal to occupants and purchasers and their relative scarcity."
The fallout from the COVID-19 financial crisis caused Dexus to implement temporary reductions in remuneration at director and executive levels, as well as annual leave initiatives, and a freeze on recruitment and non-essential consultancy spend.
The company also withdrew its FY20 guidance on 26 March 2020.
Despite the impact felt by the broader real estate sector Dexus CEO Darren Steinberg says the company is well positioned to see the crisis through.
"Fortunately, as at 31 May 2020 our property portfolio is in strong shape and we've entered this crisis in a robust position with high portfolio occupancy, limited new supply in our key CBD office markets and a strong balance sheet," says Steinberg.
"We know this is a challenging time for many of our valued customers (tenants) and appreciate we are in this together. We are committed to helping our customers and consistent with the government's Code of Conduct, our focus is on prioritising assistance to support the viability of our small business customers."
With regard to Dexus' industrial portfolio the company says industrial leasing enquiry levels have slowed but some categories remain relatively active, such as food, pharmaceuticals and online goods.
The company is also witnessing strong demand from the healthcare, construction plant, and equipment sectors.
"Industrial property markets are expected to be relatively resilient given market vacancy is relatively low and the risk of over-supply will be mitigated by the responsiveness of supply to the adjusting levels of demand," says Dexus.
"The long-term growth drivers for the Australian industrial market remain intact with continued expansion in ecommerce and infrastructure investment."
The company's development and concept pipeline stands at a cost of approximately $11.2 billion post completions and additions. The group forecasts its committed project spend until the end of 2022 will be around $289 million.
"Dexus is in a strong position," says Steinberg.
"There are a lot of moving parts both domestically and globally and it is reassuring to see Australia is well placed in managing the spread of COVID-19 compared to the rest of the world. We are starting to see restrictions being progressively eased by state governments across the markets that we operate in.
"The eventual recovery will be helped by sizeable government fiscal stimulus, a lower for longer interest rate environment, and the ongoing infrastructure pipeline underway in key capital cities."
Shares in Dexus are up 2.28 per cent to $8.96 per share at 11.09am AEST.
Business News Australia
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