Centuria Office REIT divests Brisbane fringe asset at book value

Toowong office building illustrates metro-market demand

• 555 Coronation Drive, Toowong Qld divested at book value for $37m+
• Optimised asset provides 100% occupancy, 3.4-year WALE, 5.5-star NABERS energy rating
• Transaction reflects investment demand for smaller scale commercial assets
• Strategic divestment enhances COF’s portfolio allocation, mid-term metro tailwinds anticipated.

Australia’s largest listed pure-play office fund, Centuria Office REIT (ASX: COF), has exchanged unconditional contracts to divest 555 Coronation Drive, Toowong QLD for a contract price of $37.35 million, consistent with its 31 December 2023 book value.

Located at 555 Coronation Drive, Toowong, the transaction reflects strong investment appetite for smaller scale, well-located metropolitan offices with strong leasing and sustainability credentials.

The A-Grade property is 100% occupied and provides a 3.4-year Weighted Average Lease Expiry (WALE)¹. It also benefits from a 5.5-star NABERS energy rating and 4.5-star NABERS water rating. COF acquired the asset in late 2014.

Belinda Cheung, COF Fund Manager said, “COF has now divested four metropolitan office assets either at or close to their book values throughout FY24. These have been assets where the REIT has extracted value through a series of refurbishments and measures to improve amenity and sustainability efficiencies. The value-add strategies have resulted in strong leasing and occupancy for the assets, which in turn has generated comparably strong investment demand. Built in 1989, the Toowong divestment is also consistent with the REIT’s strategic focus on improving portfolio assets by age and quality.

“Most of Australia’s office transactions completed in the past 18 months have been for smaller scale assets below the $100 million threshold, demonstrating market demand and a deeper buyer pool for assets in this category nationwide.”

555 Coronation Drive, Toowong Qld is an A-grade, three-storey commercial office building. It provides two levels of basement parking and three levels of office accommodation with floorplates ranging between 1,622sqm and 1,983sqm, providing a combined net lettable area of 5,568sqm.

In 2020, the building benefitted from a series of refurbishments including new foyer, lifts, bathrooms and end-of-trip facilities.

Ms Cheung also cited mid-term market tailwinds based on Australia’s population growth and falling supply of new office developments in metropolitan markets.

She said, “Looking forward, development feasibilities have been impaired due to rising construction costs, increased finance costs and softening capital market transactions, pushing economic rents significantly above prevailing rents in the majority of Australian office markets, especially those COF is exposed to.

“Coupled with this is forecast population and white collar employment growth. We expect 2.6 million more workers in Australia by 2033² and estimate that 27% will be white collar workers, which is likely to generate up to seven million square meters of additional office space demand³. This will be particularly beneficial for high quality, existing portfolios that offer affordable accommodation solutions like COF.”

During FY24, COF’s has divested $139 million of non-core office assets including, 54 Marcus Clarke Street, Canberra ACT; 35 Robina Town Centre Drive, Robina Qld; and 1 Richmond Road, Keswick SA. Sales proceeds will be used to repay debt.

Knight Frank’s Justin Bond and Blake Goddard and CBRE’s Jack Morrison and Adelaide O’Brien were appointed agents on behalf of Centuria.

1. By income as at 31 December 2023
2. CBRE Research, January 2024
3. Assumes every additional white-collar worker requires an additional 10 sqm of office space