Centuria Office REIT has reaffirmed its FY25 financial guidance while navigating elevated vacancies and fragmented leasing momentum in the Australian office market.
- FY25 FFO guidance reaffirmed at 11.8 cents per unit
- Distribution guidance maintained at 10.1 cents per unit with 8.1% yield
- Portfolio occupancy steady at 91.4% with 4.2-year weighted average lease expiry
- 21,078 sqm of lease terms agreed year-to-date, including key new leases in Queensland and NSW
- Leasing headwinds persist due to elevated national vacancy and cautious tenant demand
Steady Guidance Amid Market Headwinds
Centuria Office REIT (ASX: COF) has released its Q3 FY25 operating update, reaffirming its full-year financial forecasts despite ongoing challenges in the Australian office sector. The REIT confirmed its funds from operations (FFO) guidance at 11.8 cents per unit and distribution guidance at 10.1 cents per unit, reflecting confidence in its portfolio's resilience and income stability.
With a current annualised distribution yield of 8.1%, Centuria Office REIT continues to offer an attractive income stream for investors, even as the broader office market contends with elevated vacancy rates and fragmented leasing activity.
Portfolio Performance and Leasing Activity
As of 31 March 2025, COF's portfolio occupancy stood at a solid 91.4%, supported by a weighted average lease expiry (WALE) of 4.2 years. The REIT has actively progressed leasing efforts, securing 21,078 square metres of lease agreements year-to-date, which represents 7.7% of its net lettable area (NLA). Notable new leases include a 10-year agreement for 3,296 sqm at 825 Ann Street in Fortitude Valley, Queensland, and a five-year lease for 715 sqm at 201 Pacific Highway, St Leonards, New South Wales.
Despite these successes, leasing momentum remains uneven. The REIT faces extended downtime between leases due to cautious tenant demand and longer lead times, reflecting broader market hesitancy. Elevated vacancy rates nationally, compounded by new supply from recent developments, continue to pressure leasing outcomes in some submarkets where COF holds assets.
Strategic Asset Management and Market Outlook
Centuria is proactively addressing vacancies and upcoming lease expiries through targeted refurbishments and repositioning efforts. The focus is on aligning office spaces with evolving tenant preferences, particularly for modern, sustainable, and flexible accommodation. This hands-on asset management approach aims to enhance leasing appeal and maintain portfolio competitiveness.
Fund Manager Belinda Cheung expressed cautious optimism about the medium-term outlook. She highlighted diminishing forecast supply outside current developments, rising replacement costs for new construction, and improving net absorption trends as positive market drivers. Additionally, increased transaction volumes and investor interest, both domestic and offshore, signal confidence in the office sector's recovery despite near-term leasing challenges.
Looking Ahead
While the near-term environment remains complex, Centuria Office REIT's reaffirmed guidance and active portfolio management suggest a steady course through market headwinds. Investors will be watching closely for how leasing momentum evolves and whether refurbishment initiatives translate into improved occupancy and income stability in coming quarters.
Bottom Line?
Centuria’s steady hand amid office market turbulence sets the stage for a critical test of leasing resilience in FY25.
Questions in the middle?
- Will Centuria’s refurbishment strategy accelerate leasing and reduce vacancy in the near term?
- How will tenant demand evolve amid ongoing economic and geopolitical uncertainties?
- Can the REIT sustain its distribution yield if leasing headwinds persist beyond FY25?