CEO Outlook 2025: Michael Sheffield, Dexus

le levels, supported by strong structural tailwinds. Challenges posed by the proliferation of ecommerce and uncertainty in a higher interest rate environment are mostly abated, and healthy fundamentals are demonstrating the sector’s resilience. Retail sales are at all-time highs, with a 10-year low in tenant occupancy costs, improved retailer profitability, near historic-low vacancy rates and positive re-leasing spreads. Australia’s lower ecommerce growth due to a lack of scale, high transport costs and geographic spread of the population has reinforced the importance of bricks-and-mortar for consumers. As buying behaviour continues to evolve, omni-channel physical retailers are adapting. Physical stores in good metropolitan locations close to customers are increasingly operating as part of retailers’ distribution networks, providing delivery, Click & Collect and returns services to customers. Nationally, retail sales are forecast to grow at 3.5% p.a. over the next decade supported by continuing population growth. In addition, government policy is shifting, prioritising densification in inner-city locations, which is expected to increase retail productivity at strategically located shopping centres. But of course, when it comes to developing new greenfield assets, the sector is faced with high barriers. Australia’s planning controls, land prices and availability, and construction costs are a significant handbrake on new supply. The flip side of this is that supply shortage, combined with increasing demand will drive retail outperformance for well-located and well-managed stabilised assets. This performance is likely to be even better if the assets have value-add and development opportunities. This is a key reason why we at Dexus feel so positive about our $9.0 billion retail portfolio. Our 26 retail assets across Australia and New Zealand are in prime quality locations and have untapped development opportunities in growing surrounding population bases. While we might be known best for our office assets, our presence and performance in retail has been a personal highlight for me. QV Melbourne Many people in the industry are surprised when I tell them that more than 37% of Australia’s population is serviced by Dexus retail centres. We own five of the top 20 earning retail centres in the country and are Australia’s largest joint venture partner with Scentre Group. For our investors, our unlisted retail property funds are consistent top performers. Our $2.7 billion Dexus Wholesale Shopping Centre Fund (DWSF), which has a 100% retail allocation, and our $12.7 billion Dexus Wholesale Property Fund (DWPF), with a 32% retail allocation, have both outperformed the MSCI benchmark across all time periods. With effectively no supply coming through, the most successful retail asset owners and managers will be those who can continually diversify and evolve their tenant and service offering to meet changing community needs. To do this, they need to be a very active manager, more so than they have been in the past. At Dexus, we plan to step up our focus on active management of our portfolio, which plays to our fund platform strengths. We all talk about developing mixed- use hubs, but when we think about mixed-use, we think much broader than just building apartments on top of a shopping centre. A key Dexus point of difference is that our fully integrated real assets platform and scale provides us with valuable market insights, the ability to unearth unique investment opportunities and drive enhanced returns for investors. Because we own or have exposure to airports, healthcare facilities, offices, shared workspaces, an international sports stadium and student accommodation, we can apply diverse thinking that goes way beyond delivering traditional mixed-use options in retail centres. Indooroopilly Shopping Centre, Brisbane We have opened medical centres and car dealerships inside malls, but in the future, owners will need to think about installing more diverse services, experiences and complementary alternative uses that meet growing population needs and bring more people into shopping centres. But to do this successfully, they also need to have the experience and expertise to deliver them. At Dexus, we love retail assets, and we intend to acquire more of them at the right price and grow our exposure in the sector. We back our track record of successfully identifying quality retail assets located in strong growth catchments, with effective centre layouts and unrealised potential to enhance tenant mixes to drive outperformance today and into the future. We have consistently shown through our active management that repositioning a retail asset can drive a material uplift in centre performance, through the optimisation of the tenant mix to stay aligned with customer interests and behaviour. As our Dexus Research team recently noted in their quarterly real asset review, the retail sector is expected to surprise on the upside in 2025. Both discretionary and non-discretionary spending are on the rise. Limited new construction is keeping vacancy rates low. Yields have been more stable than other sectors, and some sub-sectors, like Sydney neighbourhood centres, are even seeing yield compression. The sector is outperforming other commercial real estate sectors during the past six months for the first time in more than a decade. This performance, along with the structural tailwinds being experienced, is expected to lift investment demand as the tide turns and investors seek strategic retail exposure. I am feeling confident about the opportunities ahead and look forward to seeing what the Dexus retail team delivers this year. The outlook alone is reason to smile. SCN’s Premium members can view the full CEO Outlook feature in the latest edition of SCN magazine.