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Highlights
- Morgan Stanley sees 2025 as a pivotal year for office real estate.
- Fund managers like (CHC) and (CNI) preferred for equity exposure over asset-heavy REITs like (DXS).
- Dexus' (DXS) price target lowered to $7.30 from $8.25 due to expected challenges.
Morgan Stanley has expressed an optimistic outlook for the office real estate sector in 2025, but highlights a more favorable investment path for equity investors through fund managers, including (ASX:CHC) Charter Hall Group and (ASX:CNI) Centuria Capital Group, as opposed to the traditional approach of investing in office-focused REITs such as (ASX:DXS) Dexus.
This positive outlook for office real estate comes with a note of caution for asset-heavy real estate investment trusts (REITs), which may continue to face obstacles in 2025, including challenges with cash earnings. According to Morgan Stanley, the earnings of fund managers like (CHC) and (CNI) are more closely aligned with factors such as the appeal of office as an investment asset, asset valuation, and overall transaction volumes. These fund managers are likely to benefit more as office space rebounds in the coming year, based on their flexibility and strategic approach to office investment.
In contrast, traditional office REITs, including (DXS), may struggle due to ongoing pressures from asset-heavy models that are less nimble in adapting to changing market conditions. Morgan Stanley has maintained its "underweight" rating on (DXS) but has lowered its price target from $8.25 to $7.30, citing cash earnings pressures. Similar reductions have been made to price targets on other REITs, including Centuria Office REIT (ASX:COF), which saw its target revised from $1.35 to $1.23. As REITs face cash flow concerns and higher interest rate environments, these companies could have a harder time keeping pace with the market.
At midday, (CHC) and (CNI) showed promising performance, with both stocks trading higher, while the broader real estate sector rose by 0.9%. (DXS) also experienced slight upward movement, gaining 0.2% in line with market trends.
Morgan Stanley's predictions suggest that, with a shift toward more adaptable and diversified management models, real estate fund managers could offer a more dynamic way to navigate office real estate in 2025. They highlight the significance of earnings tied to office space demand and asset transactions, which could set (CHC) and (CNI) apart in an increasingly competitive sector.
