Elevated Vacancies Test Centuria’s Leasing Strategy Despite Strong Q1 Performance
Centuria Office REIT reported its strongest quarterly leasing performance to date, signing over 23,400 sqm across key properties while maintaining solid occupancy and reaffirming its FY26 financial guidance.
- 23,442 sqm leased across 16 transactions in Q1 FY26
- Portfolio occupancy steady at 91.1% with 4.1-year WALE
- Key lease deals at 8 Central Avenue and 101 Moray Street extend WALE significantly
- FY26 FFO guidance reaffirmed at 11.1–11.5 cents per unit
- Improved 4-star GRESB sustainability rating and commitment to zero Scope 2 emissions by 2028
Robust Leasing Activity Bolsters Portfolio Stability
Centuria Office REIT (ASX, COF) has delivered a standout start to FY26, announcing its most significant quarterly leasing result to date. The REIT secured lease agreements totaling 23,442 square metres across 16 transactions, including both new leases and renewals. This leasing activity notably addresses upcoming lease expiries and strengthens the portfolio’s weighted average lease expiry (WALE) to 4.1 years, a key metric indicating income stability.
Among the highlights, two major deals at 8 Central Avenue in Eveleigh, NSW, accounted for nearly a quarter of the building’s lettable area, extending WALE there to 7.1 years. Similarly, in South Melbourne’s 101 Moray Street, leases covering over a third of the building’s space pushed WALE to 4.1 years. These deals underscore Centuria’s ability to attract and retain tenants in competitive markets.
Occupancy and Market Positioning Amid Challenging Conditions
Despite ongoing elevated vacancy rates in some Australian office markets, Centuria’s portfolio occupancy remains robust at 91.1%. Fund Manager Belinda Cheung acknowledged the fragmented leasing momentum but expressed confidence in the medium-term outlook. She highlighted that structural factors such as higher replacement costs and the repurposing of office spaces for alternate uses are expected to constrain future supply, which should help rebalance the market and support occupancy levels.
Leasing progress in traditionally challenging locations, such as 203 Pacific Highway in St Leonards, NSW, where a new lease increased WALE to 3.1 years, demonstrates the REIT’s proactive approach to managing risk and tenant needs.
Financial Guidance and Sustainability Commitments
Centuria reaffirmed its FY26 funds from operations (FFO) guidance of 11.1 to 11.5 cents per unit and distribution guidance of 10.1 cents per unit, translating to an attractive annualised distribution yield of 8.4%. Distributions will continue to be paid quarterly, providing steady income for investors.
On the sustainability front, COF’s portfolio improved its GRESB rating to 4 stars with a score of 87, up from 81 the previous year. The REIT remains committed to achieving zero Scope 2 emissions by 2028 by sourcing 100% renewable electricity and aims to eliminate gas and diesel usage in operations by 2035. These initiatives align with growing investor demand for environmentally responsible assets and may enhance the REIT’s long-term appeal.
Looking Ahead
While near-term leasing headwinds persist due to market-wide elevated vacancies, Centuria Office REIT’s strong leasing results and strategic positioning suggest resilience. The REIT’s focus on sustainable, modern office spaces tailored to evolving tenant requirements positions it well to navigate ongoing market shifts.
Bottom Line?
Centuria’s solid leasing momentum and sustainability progress set the stage for navigating a complex office market in FY26.
Questions in the middle?
- How will Centuria manage leasing challenges if elevated vacancies persist beyond near term?
- What impact will sustainability initiatives have on tenant demand and capital inflows?
- Can the REIT maintain or improve its WALE amid evolving tenant preferences and market conditions?
