COF FY25 results: bellwether for new office cycle

Valuation gains, leasing activity and diminishing metro supply point to tailwinds

• $18m portfolio valuation gain¹ in 2H FY25; first valuation increase since FY22.
• +24,400 sqm of leasing terms agreed across 44 deals² (8.9% of portfolio NLA), +4.5% market rental growth.
• +10% of metropolitan Sydney office market to be withdrawn for alternative use by 2030.
• Delivered on FY25 guidance: FFO³ (earnings) of 11.8 cpu; Distribution 10.1 cpu.

Australia’s largest listed pure-play office fund, Centuria Office REIT (ASX: COF), reported solid FY25 results with valuation gains during the second half, healthy leasing and portfolio rental growth heralding a potential turning of the tide for the Australian metropolitan office markets.

Importantly, COF delivered on its FY25 guidance with Funds From Operations (FFO), which is the REIT’s earnings, totalling 11.8 cents per unit (cpu)³ and distribution of 10.1cpu.

COF reported a like-for-like c.$18million valuation increase¹ during 2H FY25, marking the first period of valuation growth since FY22. Significantly, 66% of COF’s portfolio incurred increased or stabilised revaluations⁴ during the period. As at June 2025, COF reported a 6.89% Weighted Average Capitalisation Rate (similar to a portfolio yield).

Belinda Cheung, COF Fund Manager said, “During the second half of FY25, COF benefited from a valuation gain, leasing momentum and portfolio rental growth averaging 4.5% year-on-year. These positive indicators are a possible bellwether for emerging tailwinds, signalling the Australian metropolitan market may be on the cusp of a new cycle.

“When looking across the whole FY25 period, the metropolitan office leasing market remained challenging with major occupiers deferring decision-making on accommodation requirements. This has led to extended downtime on vacancies, which continues to weigh on earnings.

“However, changing sentiments to office-based work, and an increased focus on productivity for enterprises across Australia, is expected to strengthen occupier demand for high-quality office accommodation. Demand remains strongest for Prime grade assets, of which COF’s portfolio has a 93% weighting.”

During FY25, COF leased over 24,400sqm across its portfolio totalling 44 transactions², representing 8.9% of Net Lettable Area (NLA). COF retains a staggered lease expiry profile with 70% of leases expiring at or beyond FY28.

The REIT cited additional sector tailwinds with metropolitan office supply further diminishing due to the rising trend of secondary assets being withdrawn for alternate uses, especially the living sector. It’s estimated that over 10% of Sydney’s metropolitan office market alone will be repurposed for alternative uses by 2030, creating more than 100,000sqm of additional demand from displaced tenants⁵. COF’s portfolio has a 27% weighting to the Sydney metropolitan markets.

Jesse Curtis, Head of Funds Management added, “The outlook for metropolitan office supply is very constrained. In addition to a diminishing secondary market, there is a widening gap between replacement value and prevailing valuations. Office development feasibilities remain challenging, which we anticipate will drive market rents in the medium term. These trends bode well for existing A-Grade office landlords and reaffirm our optimism for the future of the domestic metropolitan office sector.”

COF maintained a strong focus on capital management during the period, retaining $141.5million in debt headroom⁶ with no debt expiring before FY28. As at 30 June, 81.5% of its debt was hedged.

The REIT has provided FY26 FFO guidance⁷ of 11.1-11.5cpu and FY26 distribution guidance⁷ of 10.1cpu.

Ms Cheung concluded, “Office leasing momentum remains fragmented across Australian office markets and, accordingly, COF’s FY26 FFO guidance range takes into consideration anticipated downtime and lease-up assumptions for existing vacancy and pending expiries across COF’s portfolio.

“Looking ahead, higher replacement costs and office withdrawals for alternate-use conversion is expected to stem future supply and reduce the market size to rebalance office markets, reducing future vacancy rates. COF’s portfolio is well positioned to benefit from these impending tailwinds.”

1. Reflects gross increase. Excludes capital expenditure incurred.
2. Includes heads of agreement and executed leases.
3. FFO is the Trust’s underlying and recurring earnings from its operations. This is calculated as the statutory net profit adjusted for certain non-cash and other items.
4. By value.
5. Colliers Research: Metro Reset 2025.
6. Debt headroom is proforma and reflective of $100m in additional facilities.
7. Guidance remains subject to unforeseen circumstances and material changes in operating conditions.