The recent reporting season shows Australia’s Real Estate Investment Trusts (AREIT) sector is enjoying improving fundamentals and strengthening capital markets but the disconnect between listed valuations and private market pricing is accelerating.

This is creating compelling opportunities for investors, delivering the prospect of above average income and total returns.

The numbers told the story. With access to debt easing, AREITs reported good operating performance and improved rental growth. This is a sector emerging from the most difficult phase of the interest-rate cycle in a position of relative strength.

The Dexus AREIT Fund, currently with a yield of 5.87% for the period ending Feb 26¹, is well positioned with a focus on high-quality assets, inflation-linked income streams and balance-sheet discipline. Supply constraints and higher levels of corporate activity add to the compelling investment backdrop.

Here are 10 key takeaways:

1. Capital tailwinds support AREITs

A notable development this reporting season is the return of capital flows to real estate markets across the Asia-Pacific region.

As global investors reassess portfolio allocations, Australia and Japan have emerged as key beneficiaries of the moves away from the US. Rising Japanese government bond yields are prompting investors there to further reassess allocations, while Australia continues to offer attractive relative returns, plus transparency.

Domestically, after several years of strong equity market performance, large asset owners remain structurally underweight property. Together, these factors are beneficial to AREITs.

2. Balance sheets are stronger than sentiment suggests

AREIT balance sheets are generally in better condition than market sentiment implies. Access to debt markets has improved over the past year, loan margins have compressed, covenants have eased, or been removed at no additional cost, and debt tenors have been extended. The recent impact of higher rates has been more than offset by these factors.

Domestic and offshore funding markets are now open to the sector, and attractively priced, allowing AREITs to accretively refinance more expensive offshore debt.

Banks have also become more active lenders to the sector, while payout ratios have remained stable and dividend reinvestment plans are being used selectively to invest capital into new opportunities. Together, this reinforces our confidence in future earnings growth.

3. Buybacks and corporate activity support undervalued thesis

Following the sell-off in AREITs from late 2025, several are now trading at meaningful discounts to their underlying NTA.

This has prompted some boards, including that of Dexus, to initiate share buybacks, signalling balance sheet confidence and a disciplined approach to capital allocation.

The valuation gap between listed and private markets is also driving renewed corporate activity, although if it persists expect further take-private transactions and mergers across the sector.

One way or another, value will be recognised. Historically, when listed property trades at a sustained discount to private values it tends not to last.

4. Elevated construction costs are constraining supply

Elevated construction and statutory costs remain a defining feature of the current real estate cycle. Development feasibility has deteriorated significantly. Even with improving rent trajectories, many new projects remain uneconomic due to higher build costs and planning demands.

Landlords with well-located, high-quality portfolios are benefiting. AREITs with vintage land costs and low site coverage have redevelopment optionality.

Operational discipline has also become more important. As supply is constrained and occupancy levels rise across several sectors, management teams are focused on minimising downtime between tenancies. This too is good for AREITs as it can lead to meaningful income growth across large portfolios.

5. Income growth driving valuations

In the previous decade, much of the sector’s value creation came from capitalisation rate compression. Today, the focus has shifted decisively toward income growth. This is proving beneficial for AREITs with strong rental growth prospects, particularly those with CPI-linked lease structures.

There is plenty of scope for landlords to grow income while maintaining tenant sustainability. For investors, the transition toward income-driven valuation growth offers greater visibility around future returns.

6. Retail a standout performer

The momentum in retail continues. Sales growth remains robust, supported by strong consumer spending and improving retailer profitability. Leasing spreads have remained positive, occupancy levels are high and investor demand continues to broaden.

In many centres, retailers are seeking larger store footprints to support sales growth and enhance customer experience. Tenants are often willing to pay higher rents per square metre to secure well-located space.

Extended trading hours and more flexible space usage are also contributing to higher turnover. These dynamics support a resilient and durable income profile for retail-focused AREITs. Convenience-based retail and service station AREITs are trading below NTA. The buoyancy of the sector is in stark contrast to current valuations.

7. There is compelling value in prime office assets

The office market remains bifurcated between prime CBD assets and lower-quality stock. Capital is increasingly targeting high-quality, centrally located office buildings, particularly in Sydney. Brisbane’s office fundamentals remain comparatively strong, supported by population growth and limited new supply. Melbourne, however, continues to struggle.

While suburban office markets remain challenged, prime office asset valuations are now materially below pre-pandemic levels, creating an attractive entry point for long-term investors.

8. Industrial remains fundamentally healthy

Things are returning to normal in industrial property. After several years of exceptional growth, driven by pandemic-era supply chain disruptions, high-quality, well-located logistics facilities continue to benefit from strong structural demand linked to e-commerce, automation and supply chain optimisation.

While leasing incentives have increased modestly and rental growth has moderated, industrial fundamentals remain solid. Many industrial assets remain under-rented relative to market levels, providing scope for future income growth.

9. In residential, affordability is the driver

Residential markets continue to benefit from strong population growth and persistent supply constraints, with South-East Queensland and Western Australia two of the strongest. Victoria is improving from a lower base, with investors beginning to recognise the relative value on offer.

Affordable housing remains the most active segment, supported by state and federal policy initiatives. Capital is aggressively seeking sites to increase exposure to this area of the market.

10. There are select opportunities in alternatives

Within alternative property sectors, childcare and self-storage continue to perform well. Both benefit from favourable long-term demand and increasing institutional interest.

In healthcare, valuations have stabilised and operating conditions are improving. Government initiatives in Western Australia and Queensland are supportive of private hospital operators and should provide additional tailwinds.

Parting thoughts

The latest AREIT reporting season has confirmed that the sector remains fundamentally sound and financially resilient.

Improving access to debt markets, stable balance sheets, constrained supply and accelerating income growth are creating an attractive environment for investors, especially when one considers the valuation gap between listed and private real estate.

For investors seeking higher, reliable income and yield, inflation protection, capital upside and liquidity, the Dexus AREIT Fund offers a timely and compelling way to access these opportunities.

The features of the fund are perfect for a time that demands effective, value-based active management, including:

• Exposure to strong, growing cash flows, often linked to CPI;
• Ownership of high quality, existing assets, with embedded pricing power;
• A focus on minimising income leakage and sound capital management; and
• Selective investment in AREITs trading at discounts to NTA.

[1] Past performance is not a reliable indicator of future performance. See Fund Flyer for yields for other performance periods.