COMMERCIAL PROPERTY, SALES & LEASINGREAL ESTATE INVESTMENT TRUSTS & FUNDS

Centuria increases metro office exposure

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THE Centuria Office REIT (COF) is expecting strong ongoing demand from tenants for office space near to key transport infrastructure and retail amenity, as it moves ahead with its acquisitions in South Melbourne and St Leonards.

Billed as Australia’s largest pure-play office REIT, the trust has a $2.3 billion portfolio of mostly metropolitan assets and last month agreed to buy the fully-occupied, new 101 Moray Street building in South Melbourne for $205.1 million, on which it has just settled.

It also accepted a pre-emptive notice to buy the remaining 50% share of 203 Pacific Highway in St Leonards for $68 million, and has just entered into a contract to make the purchase.

The acquisitions geographically take its exposure to Australia’s east coast to about 85% of the portfolio, and they further reduce COF’s average building age to approximately 15.7 years.

“The assets are positioned near key transport infrastructure and surrounded by substantial retail amenity, which means they are likely to continue attracting strong ongoing tenant demand,” COF fund manager and Centuria head of office, Grant Nichols said.

“We believe the lockdowns are directing more tenant interest toward decentralised office markets, particularly the metropolitan and near city markets where COF is predominantly invested. The quality, highly connected and affordable office space that COF provides is clearly resonating with tenants.”

It secured 5,000 sqm of leasing deals across 10 separate agreements. Its portfolio weighted average lease expiry is 4.3 years, with occupancy lifting from 93.1% at the end of June to 94%.

“Our discussions with tenants indicate that many organisations recognise productivity that results from in-person collaboration cannot be replicated virtually, and employee isolation has a detrimental impact on an organisation’s culture and staff wellbeing.”

COF raised $201 million to back its recent purchases and has a new $100 million debt facility, and has no debt expiring until June 2024.

Meanwhile its flagship industrial property trust collected $456 million worth of 12 urban infill assets during the September quarter, looking to take advantage of the booming conditions in the sector.

Centuria Industrial REIT (CIP) also completed a $300 million fully underwritten institutional placement as it expanded its portfolio to 75 properties worth $3.5 billion.

CIP fund manager and Centuria head of industrial, Jesse Curtis said the strategic acquisitions “aligned with the REIT’s core investment strategy to secure high-quality urban infill assets and leasing transactions, which capitalise on the record low vacancy rates in these urban infill markets”.

“Significantly, these acquisitions were all secured off-market and demonstrate CIP’s targeted strategy and ability to grow exposure in supply-constrained urban infill markets where e-commerce-driven tenant demand is highest.”

The bulk of the buys came in a $351 million splurge on eight infill assets late last month – supported by the placement – including a $200.2 million distribution centre in Sydney’s Fairfield.

Several of the acquisitions provide future value-add opportunities by either consolidating adjacent sites to create a larger landholding or acquiring sites with holding income for future development or repositioning, Curtis added. That included the $36.8 million distribution centre at 164-166 Newton Road in Wetherill Park, adjoining its recently acquired 160 Newton Road, giving CIP a 4.6-hectare consolidated land holding.

During the quarter, CIP agreed terms across 62,258 sqm, representing about 5.0% of the portfolio, and occupancy increased to 97.4% with a weighted average lease expiry of 9.0 years.

Notable deals included Luxo Living expanding its lease across the entire 13,233 sqm at 160 Newton Road, taking the asset’s WALE from 0.9 years at acquisition to 6.8 years, while it secured a new tenant on a 10-year term across the entire 12,870 sqm at 32-54 Kaurna Avenue in Adelaide’s Edinburgh Park.

“Record-low industrial vacancy rates and limited land supply are providing a favourable leasing environment for CIP. The burgeoning e-commerce and online retailing boom, driven by the effects of the pandemic, which has accelerated changed consumer behaviours, have increased demand for high-quality industrial assets in key urban infill markets,” Curtis said.

Development of the new 40,300 SouthSide industrial estate in Melbourne’s Dandenong South began and a first tenant has been found over nearly 3,500 sqm.

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