Dexus Shelves Plans for $780M Melbourne Tower as Office Market Lags

Australian real estate fund manager Dexus group has put plans for a A$1.1 billion ($780 million) office tower in central Melbourne on the back burner as the war in the Gulf and interest rate hikes at home undermine the economics of the 39-storey development.

60 Collins Street is the second major project Dexus has shelved in recent months after the ASX-listed firm dropped plans for Central Place Sydney, a development on the southern outskirts of the Sydney business district around the city’s Central Station. 

“60 Collins Street is an outstanding premium office development site in Melbourne. Currently, the DA approved scheme does not meet our high investment hurdles given alternative opportunities to drive stronger returns for securityholders, including the securities buyback,” a Dexus spokesperson told Mingtiandi on Monday, after the Australian Financial Review had earlier reported the move.

Ranked among the 10 largest real estate fund managers in Asia Pacific by Willis Towers Watson, Dexus is deferring its pipeline projects as the Reserve Bank of Australia has responded to the Gulf War and other price pressures by raising rates twice this year. The 60 Collins Street project also faces challenges from a Melbourne office market which has not recovered as quickly as the other major Australian cities. 

8 Years in the Pipeline

The company, which has a portfolio of A$51 billion in real estate and infrastructure assets, said when it released its half-year earnings in February that it would focus on strengthening its capital base and announced a plan to buy back as much as 10 percent of its shares. The company’s stock now trades at around 30 percent below net asset value, presenting challenges to further expansion of its portfolio.

In 2018 Dexus paid A$230 million to acquire plots at 52 and 60 Collins Street and the following year received development approval for a 43,200 square metre office tower, before the Covid pandemic led the company to delay the project..

With the work-from-home era fading, Dexus began reviewing 60 Collins at the end of last year and moved the project onto its list of uncommitted developments. Estimated to require A$1.1 billion in investment, Dexus had been refining plans for the tower to align with post-pandemic requirements, and to complement the nearby 80 Collins Street project which the company opened in 2020. 

While office markets have recovered in Brisbane and Sydney, Melbourne has lagged due to an influx of new projects and slower progress in returning workers to the office. Dexus in February reported a 2.3 percent drop in like-for-like income for the six months ended 31 December, noting that the shortfall was “primarily reflecting downtime on select vacancies at 80 Collins Street and 30 Hickson Road,” referring to an office project in Sydney’s Barangaroo area.  

“We remain focussed on addressing the more challenging vacancies at 80 Collins in Melbourne, which represents 2.2 percent of portfolio income, and 30 Hickson Road in Sydney’s Western Corridor at 1.5 percent of income,” Andy Collins, executive general manager for office at Dexus said at the time.

In August last year Dexus sold its Flinders Gate office complex, two blocks away from 60 Collins Street, to PAG at a 6.37 percent market cap rate, while yields for prime office properties in Sydney averaged 6.0 percent to 6.1 percent in 2025, according to CBRE. 

Interest Rates and Internal Targets

Dexus CEO Ross Du Vernet was pressed during the presentation on whether the company was changing its projected target asset yield on costs of 5 to 6 percent for 60 Collins Street and pointed to interest rate considerations in his response.

“When we think about development margins, we have to have regard to where we think stabilized cap rates are and, again, that’s an assessment that we kind of think we need to make at the time of starting those projects. So, rest assured, if we are deploying capital into development projects we are going to need to compensated for the risk and it has got to meet our internal hurdles,” Du Vernet said, adding that the company also had internal targets for projects that had to be met. The company earlier said it would be seeking capital partners for new projects.

The company has also been selling assets this year, with a joint venture between the company and a fund under its management in February disposing of 100 Mount Street in North Sydney to North American fund manager BGO in a deal which valued the office tower at A$558 million ($394.7 million).

Last month The Australian reported that Dexus is launching a new office targeting prime Sydney projects and seeded with its Atlassian hybrid timber tower.