Australia’s largest listed industrial fund, Centuria Industrial REIT (ASX: CIP), has capitalised on the supply-demand imbalance in highly desirable east coast urban infill industrial markets to achieve positive re-leasing spreads averaging 50%i during the first half of the 2025 financial year.

A re-leasing spread is the difference between annual rental income from a prior lease and the rental income of a new lease on the same property.

During the period, CIP executed c.79,000sqm of leasing activity[v]across 13 leasing transactions, the equivalent of seven per cent of the REIT’s 87-asset portfolio worth $3.8billion as at 31 December 2024.

The strong leasing activity contributed to CIP achieving a 6.4% like-for-like net operating income (NOI) gain during HY25. 

Throughout the half-year, CIP improved its portfolio construction with non-core divestments totalling $60million, achieving an average premium to book value of 5% and delivering IRRs between c.16-19%. CIP has consistently sold assets at or above book value for the past 18 months, underpinning its Net Tangible Assets (NTA) value of $3.89 per unit.

The strong sales evidence contributed to CIP achieving a HY25 $47million valuation gainii, the second consecutive period CIP has recorded a valuation gain. As at 31 December 2024, CIP had a 5.83% Weighted Average Capitalisation Rate (WACR). WACR is comparable to a portfolio yield.

Grant Nichols, CIP Fund Manager and Head of Listed Funds, said, “During HY25, CIP continued to harness persistent industry tailwinds driven by demand for infill urban industrial facilities against a backdrop of limited supply. Strong re-leasing spreads and NOI growth are attributed to CIP’s portfolio construction, which provides a 90% exposure to east coast Australia, a c.90% weighting to urban infill markets and an average unit size of c.7,800sqm, enabling CIP to capture comparatively deep levels of tenant demand and leasing

“Australia’s urban infill markets continue to outperform fringe markets with vacancy rates of 1.8% compared to 3.3%, respectively[vi]. Adding to this, the outperformance has generated bifurcation in rental growth with infill assets providing an 8.9% year-on-year growth while non-infill asset delivered 4.0% growth. This indicates greater capacity for continued rental growth within urban infill markets, which CIP is largely exposed to.”

To further capture positive industry tailwinds, CIP progressed $60million worth of development projects during the period, part of its accretive $1.1billion development pipeline. 

New projects that commenced development in HY25 include a c.6,720sqm facility at 15-19 Caribou Drive, Direk SA, which adjoins another CIP-owned asset. The Caribou Drive development is expected to complete in Q1 FY26. Also in Direk, CIP commenced a c.21,000sqm facility at 50-64 Mirage Road, which can be split into three units ranging from 4,000sqm to 10,000sqm. The Mirage Road development anticipated completion is in Q3 FY26.

In addition, CIP is currently assessing its potential power bank across its existing infill industrial portfolio, which may provide an opportunity for future data centre use, capitalising on rising demand for data infrastructure and AI capabilities. Currently, CIP benefits from a 12% portfolio weighting to data centres, valued at $450million. These assets are leased to blue-chip tenants Telstra and Fujitsu.

Jesse Curtis, Centuria Head of Funds Management, added, “Opportune macroeconomic factors including continued population growth, increasing ecommerce adoption, rising data consumption and onshoring of supply chains are driving demand for urban infill industrial facilities. CIP’s portfolio is well positioned to capitalise on these trends while demonstrating strong fundamentals including a healthy WALE, high occupancy, considerable scale and reach across Australia. The current trading price also provides compelling value in light of CIP’s current NTA against a backdrop of persistent sector tailwinds.”

As at 31 December 2024, CIP’s portfolio provides a 7.3-year WALE and 96.6% occupancy.

Grant Nichols, concluded, “Australian industrial markets continue to exhibit the lowest industrial vacancy rates among comparable established international markets in the USA, Europe and Asia. This reflects the strong Australian macroeconomic tailwinds and the significant domestic supply constraints compared to global markets.”

During HY25, CIP delivered FFOiii of $56.6million or 8.9cpu and declared Distributions of 8.15cpu.

CIP reaffirmed its FY25 FFO guidance iv to 17.5cpuiii and reaffirmed its distribution guidanceiv of 16.3cpu, expected to be paid in equal quarterly instalments.