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Leasing volumes up 53% y-o-y across Centuria Office REIT’s portfolio

Strong leasing activity lifts COF’s occupancy over 97%

  • 35,200sqm leased YTD across 45 deals; 97.3% portfolio occupancy1, 4.1-year WALE2
  • Strong net absorption across Brisbane and Perth office markets
  • 79% leasing pre-commitments across office development, Adelaide
  • Reaffirmed FY23 FFO guidance of 15.8cpu and distribution guidance of 14.1cpu, current yield of 9.9%3

Australia’s largest listed pure-play office fund, Centuria Office REIT (ASX:COF), has reported a 53% year-on-year increase in leasing transactions across its portfolio4, reflecting improving tenant demand for quality metropolitan, near city and regional office buildings.

Financial year to date, COF has leased 35,243sqm of high-quality office space across 45 transactions nationwide, of which 79.5% were new leases and 20.5% were renewals. Within the Q3 FY23 period alone, 4,301sqm has been leased across 10 deals.

Grant Nichols, COF Fund Manager and Centuria Head of Office, said, “COF’s geographically diversified Australian office portfolio continues to benefit from the increased leasing activity evident in many domestic office markets, particularly Brisbane and Perth, which achieved strong net absorption over the last twelve months. As a result of these leasing conditions, occupancy across the COF portfolio increased to more than 97% during Q3 FY23.”

COF’s WA and QLD portfolios are now 99.8% and 97.4% occupied, respectively.

COF has limited to no exposure to Sydney’s CBD and Melbourne’s CBD office markets, which have been experiencing the weakest tenant demand nationally.

Key leasing transactions that occurred in the year to date include:

  • 818 Bourke Street, Docklands: Costa Group leased 3,576sqm on a 10 year term
  • 203 Pacific Highway, St Leonards: Warners Bros leased 2,948sqm on a 5 year term

The REIT’s confidence in the Adelaide office market was shown in July 2022 when it acquired a boutique 4,600sqm speculative office development. As the project is nearing completion, it has achieved pre-leasing commitments totalling 79% of Net Lettable Area (NLA).

The fund manager noted the importance of well leased office assets as being a contributing factor to assets’ underlying valuation.

Mr Nichols continued, “While recent transactional sales volumes across Australian office markets have reduced, there has been evidence of a bifurcation based on quality, size and leasing risk. Of the recent office transactions, those with significant leasing risk – high vacancy or significant lease expiry risk – demonstrated softer transaction metrics than high quality, well leased assets worth less than c.$150 million.

“COF’s substantial leasing success throughout FY23 remains encouraging, supported by solid tenant demand within the office markets the REIT is exposed to. As more tenants gravitate towards higher-quality accommodation, we expect COF’s high quality, young, efficient and affordable office portfolio will continue to attract and retain tenants.”

Mr Nichols noted that increased interest rates remained in-line with assumptions adopted in forming COF’s FY23 earnings forecasts. COF’s all-in cost of debt is expected to remain elevated compared to recent past periods and to be higher in FY24. He added COF continues to monitor economic conditions along with opportunities to undertake capital management initiatives where possible.

COF reaffirmed its FY23 FFO guidance of 15.8cpu and distribution guidance of 14.1 cpu, representing a FY23 distribution yield of 9.9% based on its current trading price3.

  1. By income as at 31 March 2023
  2. Weighted Average Lease Expiry (WALE) by income as at 31 March 2023
  3. Based off a unit price of $1.42 as at 28 April 2022
  4. Leasing transactions reported in Q3 FY22 vs Q3 FY23