Demand, Rising Rents Buoy Centuria Industrial

High demand and rising rents have continued to fuel urban infill industrial assets and support growth for Centuria Industrial REIT.

Centuria Industrial (CIP) said that for the first six months of the 2023 financial year, it had experienced an “exceptional” re-leasing spread of 19 per cent, compared to 8 per cent in its last full year. 

During the period, CIP leased 88,517sq m across 19 transactions which it said represented 7 per cent of the portfolio’s GL. 

CIP also entered into a strategic partnership with Morgan Stanley Real Estate Investing, disposing of around 50 per cent of its interest in a portfolio of eight assets for $180.9 million. 

During the six months the final 13,604sq m of its new multi-unit Southside Industrial Estate in Dandenong South development was leased.

The 40,500sq m estate was 100 per cent leased five months before practical completion in November 2022.

CIP also completed an early lease renewal covering 22,481sqm at 82 Rodeo Road, Gregory Hills in NSW which is said “brought forward an uplift in rental income”. 

The real estate investor said that this reflected “continuous industrial occupier demand” within national urban infill markets, which make up 83 per cent of Centuria Industrial’s portfolio and of which 98.5 per cent are under freehold ownership.

Occupier demand remains highest in this market as these “lend themselves to fast delivery times for ecommerce and logistics operators”. 

Weighted average lease expiry (WALE) across CIP’s 88 assets differs depending on state, with Queensland and Victoria averaging 10.1 years and 10.5 years respectively, and Western Australia and New South Wales combined with ACT at 3.4 years and 5.5 years.

▲ CIP fund manager Jesse Curtis: Though transaction volumes have moderated during 2022, industrial asset values are continuing to hold with uplift in market rental growth.

Its top five tenants in the half-year were Telstra, Arnott’s, Woolworths and AWH Logistics, who made up 25 per cent of its tenant income—31 per cent of its portfolio gross lettable area are multi-location customers.

However, CIP faces similar pressures to other markets, including rising rates, according to Moody’s Investors Service vice president Saranga Ranasinghe.

“Despite capitalisation rates widening, the increase in market rents has resulted in Centuria’s asset values reducing only slightly,” Ranasinghe said.

“However, we expect asset values to be under pressure in the current high interest rate environment. 

“Still, given Centuria’s current low gearing level, we expect the REIT to maintain sufficient headroom against its internal targets as well as our tolerance levels for the rating.“

Centuria Industrial said that its strategy remains “unchanged”. 

“CIP has further opportunities to execute new leasing and value-add initiatives to capitalise on the domestic market’s strong rental growth trajectory with nearly one-third of its portfolio expiring or value-add developments being delivered by the 2025 finanical year,” Centuria head of industrial Jesse Curtis said.