Centuria Office REIT’s (ASX:COF) Head of Funds Management Jesse Curtis has claimed despite “ongoing bifurcation across office markets, there is growing evidence of shifting sentiment underpinned by further momentum in office-centric workforces led by government departments and large corporations.”

One can’t help but feel like Curtis might be talking about Trump’s move to order Federal workers to return to the office over in the states, as well as the usual rabble of CEOs happy to take a hardball line while talking to The Fin or The Aus.

The comments from Curtis came as part of COF’s HY25 update, which then saw COF shares jump 1.3% to $1.15/sh on Wednesday.

But COF Fund Manager proper Belinda Cheung was perhaps more realistic when it came to the months and years ahead.

Despite population growth and “stronger occupier sentiment,” Cheung noted “in the near-term vacancy rates across Australian office markets remain at elevated levels, which suggest it may take some time for these tailwinds to translate into material rental growth.”

“Notwithstanding, we have seen increased activity from investors who can see past these short-term headwinds.

While overall transaction levels remain low compared to long-term averages, Australian office investment has seen increased enquiry and transaction volumes over the last half,” Cheung concluded.

Not enough, clearly, to push COF’s one-year returns into the green – 1Y returns are down -7.3% though YTD performance clocks higher at +4.5%.

Perhaps of most interest when it comes to market implications for office towers is what Centuria is doing at ResetData. There, an unused office space asset is being cleared out and converted into a data centre.

That conversion to a data centre uplifted the relevant property’s valuation by 10%, according to COF, while it still sits on 19 other office assets worth a collective A$1.9B.

When it comes to rents, Centuria’s strength appears to be in picking tenants. Targeting listed companies, multinats and government departments, the company feels 77% of its overall rent yield is stable.

Still, 1HFY25 occupancy had slipped (fractionally) from FY24 to remain mostly flat, and book value fell from $1.9B in FY24 to $1.885B in the first half of FY25.

So, not all bad. Given occupancy and book values remain mostly flat, it could be surmised the office market isn’t going to get much worse.

But whether or not COF will ever see work-from-home dynamics embedded by the pandemic truly reverse remains the knowledge of crystal balls.

Maybe it isn’t unreasonable to expect more data centre conversions.

COF last traded at $1.15/sh.

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