Centuria Office REIT (ASX, COF) reports a robust HY26 performance marked by significant leasing activity, a notable valuation uplift, and reaffirmed full-year guidance, underscoring a new cycle of recovery in the Australian office market.
- 29,354 sqm leased across 26 deals, a 133% increase from HY25
- $42.8 million like-for-like portfolio valuation gain
- Portfolio occupancy at 91% with a 4.1-year weighted average lease expiry
- Strategic divestment of 9 Help Street, Chatswood, at a 12.5% premium
- FY26 guidance reiterated, FFO 11.1-11.5 cents per unit, distribution 10.1 cents per unit
A New Cycle of Recovery
Centuria Office REIT (ASX – COF) has unveiled its HY26 results, signalling a promising turnaround for Australia's largest pure-play office REIT. The half-year period saw leasing activity surge, with 29,354 square metres leased across 26 transactions, more than doubling the volume from the same period last year. This leasing momentum has materially de-risked the portfolio’s near-term expiry profile and underpins the REIT’s confidence in its FY26 outlook.
The portfolio, valued at approximately $1.9 billion and comprising 19 assets, achieved a healthy 91% occupancy rate. The weighted average lease expiry (WALE) remained steady at 4.1 years, reflecting the REIT’s focus on securing longer-term leases to enhance income stability.
Valuation and Strategic Moves
Centuria reported a $42.8 million like-for-like valuation gain, marking the second consecutive period of valuation growth. This uplift was supported by a 4% increase in market rents year-on-year and a stabilising weighted average capitalisation rate (WACR) of 6.92%. Notably, the strategic divestment of 9 Help Street, Chatswood, achieved a 12.5% premium over book value, improving portfolio quality and reducing leasing risk associated with short WALE assets.
Despite these positive fundamentals, COF’s units continue to trade at a significant discount, around 38%, to net tangible assets, highlighting a potential disconnect between market pricing and underlying asset values. This discount may present an opportunity for investors seeking exposure to quality office real estate at a relative value.
Market Context and Outlook
The broader Australian office market remains constrained by limited new supply, with projected completions over the next five years expected to be a quarter of historical levels. Rising construction costs and labour shortages are further limiting development, supporting rental growth prospects. Centuria’s portfolio benefits from exposure to prime and well-located assets, with an average building age of 19 years and a strong tenant mix dominated by government and multinational corporations.
Centuria reaffirmed its FY26 guidance, targeting funds from operations (FFO) between 11.1 and 11.5 cents per unit and a distribution of 10.1 cents per unit, reflecting confidence in sustainable income generation. Capital management remains robust, with proforma gearing at 42.5% and no debt maturities before FY28, providing ample headroom amid interest rate volatility.
Sustainability and ESG Commitments
On the environmental front, COF is advancing its sustainability agenda, targeting zero scope 2 greenhouse gas emissions by 2028 through renewable energy sourcing and electrification of assets. The REIT maintains a 5.1-star NABERS energy rating across its portfolio and continues to engage tenants and communities in ESG initiatives, reinforcing its commitment to responsible property management.
Bottom Line?
As Centuria Office REIT navigates a recovering office market with strong leasing and valuation gains, investors will watch closely to see if market pricing narrows the gap to underlying asset values.
Questions in the middle?
- Will COF’s trading discount to net tangible assets narrow as market confidence improves?
- How will rising construction costs and constrained supply impact future portfolio growth opportunities?
- What are the risks to maintaining occupancy and rental growth amid evolving office space demand?