Centuria forecasts new cycle for office property after first upward revaluation since FY22

Emboldened by an $18 million portfolio gain, Centuria Office REIT (ASX: COF) fund manager Belinda Cheung believes a new market cycle could be around the corner for office property.

As Australia’s largest listed pure-play office fund, COF has reported its first valuation increase since FY22 with two-thirds of portfolio revaluations increased or stabilised in June 2025.

Valuation growth on December levels was underpinned by an average 4 per cent increase in adopted market rents across the fund's 19 assets worth more than an estimated $1.9 billion.

Compared to June 2024 however, this valuation is down marginally and funds from operations (FFO) declined 14 per cent to $70.4 million, but the fund's statutory loss was improved significantly from $168.3 million in the red in FY24 to a loss of $19.8 million in the recent financial year.

Cheung says leasing across the metropolitan office markets remained challenging during FY25 with major occupiers deferring decision-making on accommodation requirements.

"This has led to extended downtime on vacancies, which continues to weigh on earnings. However, during the second half of FY25, COF benefited from a valuation gain, improved leasing momentum and portfolio rental growth averaging 4.5 per cent year-on-year," she says.

"These positive indicators are a possible bellwether for emerging tailwinds, signalling the Australian metropolitan market may be on the cusp of a new cycle.

"Furthermore, changing sentiments to office-based work, and increased focus on productivity for enterprises across Australia, will strengthen occupier demand for high-quality office accommodation. Demand remains strongest for Prime grade assets, of which COF’s portfolio has a 93 per cent weighting."

COF's head of funds management Jesse Curtis says the outlook for office supply is becoming extremely constrained.

"With a widening gap between replacement value and prevailing valuations, office development feasibilities remain challenging, which we anticipate will drive market rents in the medium term," he says.

"Office supply is further diminished with the rising trend of secondary assets being withdrawn for conversion for alternate use, especially the living sector.

"It’s estimated that more than 10 per cent of Sydney’s metropolitan office market will be repurposed for alternative uses, creating more than 100,000sqm of additional demand for displaced tenants. These trends bode well for existing A-Grade office landlords and reaffirm our optimism for the future of the domestic metropolitan office sector.”

The fund highlights significant leasing deals achieved over the period, including two in 825 Ann Street in Brisbane's Fortitude Valley across 4,414sqm, eight secured for 201 Pacific Highway in St Leonards in Sydney for 4,297sqm, and five in 485 Kingsford Smith Drive in Brisbane's Hamilton totalling 4,041sqm.

COF also secured a new 10-year lease with ResetData for a 1.1 megawatt sovereign AI factory at 818 Bourke Street in Melbourne's Docklands, in addition to another lease, both totalling  around 2,675sqm.

The fund's FFO on a per unit basis off 11.8 cents was in line with guidance, with a level of 11.1-11.5 cents per unit in FFO expected for FY26.

"COF continues to execute its strategy through active leasing as well as asset and capital management initiatives," says Cheung.

"Despite this, the office leasing momentum remains fragmented across Australian office markets and, accordingly, the FY26 FFO guidance range takes into consideration anticipated downtime and lease-up assumptions for existing vacancy and pending expiries across COF’s portfolio.

"Looking ahead, higher replacement costs and office withdrawals for alternate-use conversion is expected to stem future supply and reduce the market size to rebalance office markets, reducing future vacancy rates. COF’s portfolio is well positioned to benefit from these future tailwinds."