This article is from the Australian Property Journal archive
THE Gold Coast office market is set to hit its tightest position on record, with “nowhere to go but down” for vacancies as the city’s supply of new buildings dries up.
Supply will dwindle to a trickle in 2024 and 2025 amid a standstill of new projects, heaping more pressure on the sector over the next three years, according to Colliers’ latest Gold Coast Market Overview.
While the data showed an easing in the Gold Coast’s office vacancy rate over the six months to July – from 6.0% to 6.3% – a dearth of new projects is about to put the squeeze on the market in earnest.
Net absorption of office space surged 16% to 6,534 sqm in the first half of 2023, with the rise in vacancies triggered by new supply being added to the market. But with vacant space of 29,157 sqm currently remaining out of the Gold Coast’s total stock of 462,373 sqm, the current take-up of space running at more than 12,000 sqm per year points to a headline supply of less than three years for the Gold Coast office market
“The Gold Coast remains one of the tightest office markets in the country, and despite a small uptick in vacancies in the last six months, the broader trend is for a continued tightening over the next few years,” said Steven King, Gold Coast director-in-charge at Colliers.
“Given the limited supply expected over this period and continued strong demand, the vacancy rate really has nowhere to go but down.”
Vicinity Robina will be the sole provider of new office space on the Gold Coast for the remainder of the year, bringing just 2,200 sqm to the market – representing just a third of the net absorption rate over the first six months of this year.
Supply continues to be impacted by high construction costs, labour shortages and higher borrowing costs, King said, and as a result Colliers is not anticipating any new projects in 2024 and 2025, potentially leaving the Gold Coast market in its tightest position on record.
The only other project of note is V & A Broadbeach, which is expected to deliver 5,500 sqm in 2026. A number of other proposed developments remain on hold for now.
Amid the broader flight-to-quality trend, A-grade office buildings remain the hottest property in the Gold Coast office market, with the lowest vacancy of any office grade at 4.6%. Net absorption of space is highest in this grade, primarily driven by the uptake of newly constructed buildings.
The growing Robina-Varsity Lakes precinct had the biggest increase in supply with an additional 6,820 sqm in the past six months, which was matched by the precinct experiencing the city’s highest level of net absorption at 5,734 sqm – representing 88% of the total net absorption across the city’s key office precincts.
Despite adding just 464 sqm of new space, Southport’s net absorption surged to 1,793 sqm, followed by Bundall with positive net absorption of 784 sqm for it to become the city’s tightest office market with a vacancy rate of 4.8%.
Broadbeach and Surfers Paradise recorded negative net absorption primarily attributed to tenant relocations that resulted in the addition of backfill space.
Space constraints in the key office precincts have led to the emergence of non-core precincts over the past three years, which have delivered about 11,700 sqm of new office space in the last year alone. About 75% of this space is now occupied.
The market has been buoyed by growth in the construction sector, which saw an additional 880 new GST-registered businesses in 2022, while professional services grew by 703 new businesses and healthcare added 557 businesses.
Half of enquiries for new space have been for expansion, while a quarter have been for relocation, largely driven by small to medium enterprises, according to Colliers.
Tighter market pushing up rents
The tightening vacancy rates and dwindling supply is making a notable impact on office rents, with A-grade rents rising 6% over the year to an average of $518 per sqm. Secondary stock saw 8% growth, reaching $445 per sqm, driven by strong SME demand.
The June quarter saw the largest growth in the last 12 months.
“Since there is no new unabsorbed supply entering the market, we’re expecting low vacancy rates to fuel further rental increases and lead to a further reduction in incentives by landlords,” King said.
“Tenants are also making decisions sooner than in recent years, owing to the tight market conditions.”
Total office property sales on the Gold Coast in the first six months of 2023 hit $118 million, a figure boosted by the Gold Coast City Council’s $46.25 million acquisition of the Wyndham Corporate Centre building at Bundall, pushing the total higher than full-year sales for 2022. The figure is below the $382 million recorded in 2021 but is on track to be well above the 10-year average of about $130 million.
