Morgan Stanley sees improved outlook for office real estate

The news: Morgan Stanley expects 2025 to be a stronger year for office real estate, but believes the best way for equity investors to gain exposure could be through fund managers like Charter Hall Group and Centuria Capital Group, rather than traditional office REITs Dexus.

The numbers: Charter Hall (2.4%) and Centuria (1.6%) were both trading higher by 1:45pm AEDT as the real estate sector added 0.9%. Dexus edged up 0.2% while the wider index gained 0.25%.

Morgan Stanley retained its 'underweight' rating on Dexus but lowered its price target from $8.25 to $7.30. It also cut its price target on Dexus' ASX rival Centuria Office REIT from $1.35 to $1.23.

The context: Morgan Stanley said that fund managers' earnings are directly tied to the appeal of office as an investment class, asset valuation and transaction volumes. Meanwhile, asset-heavy REITs such as Dexus could continue to face challenges from cash earnings headwinds.