Demand, Rising Rents Buoy Centuria Industrial
High demand and rising rents continued to complement urban industrial assets and support growth for Centuria Industrial REIT.
Centuria Industrial (CIP) said it experienced an “exceptional” re-letting spread of 19 percent for the first six months of the 2023 financial year, compared with 8 percent in its last full year.
During the period, CIP leased 88,517 square meters across 19 transactions, which it said represented 7 percent of the portfolio’s GL.
CIP also entered into a strategic partnership with Morgan Stanley Real Estate Investing, selling approximately 50 percent of its stake in a portfolio of eight assets for $180.9 million.
During the six months, the final 13,604 square meters of its new multi-unit Southside Industrial Estate in Dandenong South development was leased.
The 40,500 square meter estate is 100 percent let five months ahead of practical completion in November 2022.
CIP also completed an early lease renewal covering 22,481 square meters at 82 Rodeo Road, Gregory Hills in NSW, which it said “has delivered an increase in rental income”.
The property investor said this reflected “continued industrial occupier demand” within national urban infill markets, which make up 83 per cent of Centuria Industrial’s portfolio and 98.5 per cent of which are under freehold.
Demand from occupiers remains highest in this market, as it “lends to fast delivery times for e-commerce and logistics operators”.
Weighted average lease expiry (WALE) across CIP’s 88 assets varies by 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: Although transaction volumes have moderated during 2022, industrial asset values continue to rise with market rent growth.
Its top five tenants in the half year were Telstra, Arnott’s, Woolworths and AWH Logistics, which accounted for 25 per cent of its tenant revenue—31 per cent of its portfolio’s gross lettable area being 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 capitalization rates increasing, the increase in market rents has resulted in Centuria’s asset values declining only slightly,” said Ranasinghe.
“However, we expect asset values to be under pressure in the current high interest rate environment.
“However, given Centuria’s current low level of leverage, we expect the REIT to maintain sufficient headroom against its internal targets as well as our tolerance levels for the rating.”
Centuria Industrial said its strategy remains “unchanged”.
“CIP has further opportunities to execute new leasing and value-add initiatives to capitalize on the local market’s strong lease growth trajectory with almost one-third of its portfolio maturing or value-add developments delivered by the 2025 financial year,” Centuria head of industrial Jesse Curtis said.