ASX dividend stock Centuria Office REIT (ASX: COF) has seen a significant decline since February 2020, falling by 65% over the five years. And shares in this office real estate investment trust (REIT) are down by 56% since September 2021, as the chart below shows.

The Centuria Office REIT has 19 assets worth a stated $1.9 billion, and more than 85% of its tenants are ASX-listed, government, multinational, or national. The properties are largely located in metropolitan and near-city office markets that are well-connected to transport.

It's understandable why the Centuria Office REIT share price has fallen so much in the last few years – there was a big shift to work-from-home during COVID and interest rates soared. The high RBA cash rate means debt costs more, and it impacts property values.

But, for several reasons, I think the ASX dividend stock could now be a contrarian opportunity.

Back-to-office mandates

During COVID, there was a significant reduction in demand for office space. But, the work-from-home shift appears to have slowed and is perhaps even reversing. Here's what Centuria Office REIT had to say in the FY25 first quarter:

During Q1 FY25, tailwinds across domestic office occupier markets emerged with an increasing number of national and multinational corporations issuing return to office mandates (eg Tabcorp Holdings Ltd (ASX: TAH) and Amazon), underpinning the relevance and demand for office assets.

Furthermore, survey findings from the KPMG CEO Outlook 2024 Australia revealed that 82% of CEOs expect traditional office roles to return within three years, up from 66% last year.

The REIT also noted that Australian office markets continued "to demonstrate improving leasing momentum", with the majority of markets demonstrating "positive net absorption" in the first three months to September 2024.

In other words, demand is taking up some of the empty office space in places where the REIT is focused, including Canberra, the Melbourne fringe, Adelaide, Chatswood, the Brisbane fringe and Perth.

In the FY25 first quarter, the ASX dividend stock agreed on lease terms for 3,531 sqm of space in 11 transactions.

Appealing financial metrics

Despite recent commentary that the office market is tough, this ASX dividend stock still offers a large distribution.

Centuria Office REIT expects to generate funds from operations (FFO) – net rental profit – of 11.8 cents per unit and pay a distribution of 10.1 cents per unit. At the current valuation, it's trading at under 10x FY25's rental profit, and it has a guided distribution yield of 8.9%.

In the first quarter of FY25, it had an occupancy rate of 91.2% and a weighted average lease expiry (WALE) of 4.2 years. While those numbers aren't the best in the REIT sector, I think it offers solid visibility of rental income in the next few years.

Interest rates to lower?

Rising interest rates have been a major headwind to the ASX dividend stock. This remains a problem for REITs because of their large debt loads.

I'm expecting Australian interest rates to lower eventually, and if the RBA does indeed reduce its cash rate in 2025, this could be a significant catalyst for the business this year.

Some economists think the RBA could cut rates in February, though given the ongoing strength of the Australian jobs market, it may take a few more months.

An increase in rental profits could help the distribution and encourage investors to pay more for Centuria Office REIT units.

The business reported net tangible assets (NTA) per unit of $1.80 in June 2024. However, it's trading at a 37% discount to this figure.