Development on the horizon
by Jason Huljich, Joint CEO
Centuria is known for its real estate funds management platform – across office, industrial, healthcare, daily needs retail, large format retail, agriculture and credit funds. However, we have been developing properties throughout the past 15 years and currently have $2.2 billion1 worth of real estate development coming down the pipeline.
These developments range from fit-outs and refurbishments to redevelopments and new greenfield/brownfield projects.
So, why has our development arm expanded so rapidly in recent years?
Put simply, occupiers are no longer looking for cookie cutter tenancies.
Centuria has taken a strategic approach, by tailoring real estate space to occupiers’ needs for today and in the future. This is a win/win for our tenant customers and investors alike. On the customer side, it leads to ‘sticky’ tenants who commit to longer leases on strong covenants as they are working in efficient bespoke environments. On the investor side, long leases and strong covenants creates more certain revenue streams. This is especially evident for triple-net leases where expenditure for maintenance and capital works is the responsibility of the lessee.
The need to develop tailored solutions is also due to limited Prime and A-Grade stock outside of the office market, particularly within the industrial and healthcare sectors.
There is strong demand for urban, infill industrial space but current supply is limited. Centuria Industrial REIT (ASX: CIP) has focused on securing adjacent and neighbouring land parcels within these supply constrained markets, to capitalise on surplus land. This enables us to expand existing facilities to increase capacity for an operator’s expanding business or create a tailor made facility across abutting sites.
Healthcare also requires a very hands-on approach as operators have specific needs. This is especially so, when considering the velocity of innovations and medical breakthroughs. Operators need the ability to future proof their businesses – be that the ability to introduce robotic surgery at a later date, incorporate new ventilation systems that mitigate the spread of infectious diseases or install the latest diagnostic and treatment equipment within specific, lead lined bunkers.
Moreover, developing tailored real estate provides an immediate and high quality source of assets for our REITs and unlisted funds.
Our approach to development has been adopted throughout Australia and New Zealand.
Complementing our development division is Centuria Bass Credit Pty Ltd (CBC), which provides non-bank real estate finance. Since 2015, CBC has facilitated finance for c.80 developments nationwide.
From both a developer and financier perspective, mitigating inflationary risks is paramount. A three-pronged approach to executed risk management of inflation includes:
- Fixed priced contracts – working closely with quantity surveyors to ensure correct pricing is reflected in agreements and there is an appropriate contingency.
- Securing a high proportion of pre-lease agreements prior to construction commencing.
- Engaging reputable builders. Centuria engages top-tier construction contractors to deliver our projects.
In conclusion, while Centuria has no intention of steering away from its core offering of funds management, we see great potential and synergy in bolstering our development division to aid further expansion of our real estate portfolio, delivering high quality assets and creating loyal tenant customers.
1. As at 31 December 2021
by Jason Huljich, Joint CEO
Does it feel like a long-time ago or in the blink of an eye since the #covid19 pandemic took hold in Australia? Monday 20 March marked the three year anniversary of this black swan event.
by Jason Huljich & Ross Lees
Investors looking at real estate investment may only consider the risks posed by inflation such as rising debt costs, share market investor risks appetite (for A-REITs) and any potential impacts on valuations for property purchases chasing yield. However, investors often overlook positive factors.