Morgan Stanley Sees Stabilisation Ahead for Australian Office Real Estate in 2025

2 min read | January 14, 2025 11:52 AM AEDT | By Team Kalkine Media

Morgan Stanley Sees Stabilisation Ahead for Australian Office Real Estate in 2025 — Image source: shutterstock

Challenges for Asset-Heavy REITs

Morgan Stanley highlighted that asset-heavy real estate investment trusts (REITs) like Dexus (ASX:DXS) and Centuria Office REIT (ASX:COF) are likely to face continued pressure on cash earnings. This stems from the combination of elevated vacancy rates in office spaces and the need for significant tenant incentives in a competitive leasing environment.

Reflecting these challenges, the brokerage lowered its price targets for both firms. Dexus' price target was cut to AU$7.30 from AU$8.25, while Centuria Office REIT's target was reduced to AU$1.23 from AU$1.35. Despite these reductions, Morgan Stanley expressed optimism that the broader sector is poised for stabilization and eventual growth.

Market Sentiment Turns Positive

The Australian real estate sub-index (.AXRE) gained 1.1% by 2309 GMT, breaking a four-session losing streak. The rise in the sub-index signals improving investor sentiment, likely driven by Morgan Stanley's outlook for a stronger 2025 and stabilization in valuations.

Outlook for 2025

Morgan Stanley's forecast underscores the gradual recovery trajectory for the office real estate sector in Australia. While valuations are expected to stabilize first, the recovery in cash earnings may lag, requiring patience from investors.

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