Charter Insight: Gold Coast Office Market

Introduction

Research conducted by Charter into the Gold Coast office market and its various precincts shows that vacancy rates remain well below the historical average despite a recent increase in vacancy on the back of a fall in demand for space.

Key Points

  • Vacancy rates have increased in six months to July 2019 from 11.6% to 12.95% on the back of a fall in demand but remain below historical averages.
  • Newly developed and refurbished office space totalling 8,769 sq.m. to come on-line in 2020.
  • Net face rents have increased.

Supply & Demand  

There is currently a total of approximately 469,800 sq.m. of office space on the Gold Coast. Notably, the amount of office stock in this market has almost doubled since 2002 with an additional 221,000 sq.m. (net) being added to the market, of which virtually all has been absorbed.

The current vacancy rate is only 1.4% higher than it was in July 2002, a result which can be credited to the increasing diversity and growth of the Gold Coast economy.  Despite an increase in the six months to July 2019, the current vacancy rate of 12.9% is one of the lowest levels recorded in the past decade and sits well below the historical average vacancy rate of 16.2%.

Office Stock Volume & Vacancy Rate (1991 – 2019)

Graph One

Source: Charter Keck Cramer & Property Council of Australia (OMR)

When observing vacancy rates and stock supply for the different office building grades, it is notable that B-Grade office stock has tended to have the strongest performance as well as the largest supply.  Comprising 42% of the total Gold Coast office market, B-Grade office stock has current vacancy rates of 10.7%, its lowest in 5 years, and lower than the historical vacancy rates of around 12%.

Total Office Stock by Grade

Graph Two

Source: Charter Keck Cramer & Property Council of Australia (OMR)

A-Grade office represents 28% of the total stock and has a current vacancy rate of 14.4%, which is an increase on the 11.9% vacancy rate observed in the six months to January 2019, and the all-time low of 8.9% recorded in January 2018. The current vacancy rate for A-Grade buildings is still below the historical average vacancy rates of around 16%.  Significantly, the Gold Coast does not have any Premium Grade office stock.

The vacancy rate for D-Grade stock has tended to be the most volatile, albeit off a relatively small amount of stock which represents just 3% of the total supply. The current vacancy rate of 11% for D-grade stock is only slightly higher than that for B-Grade stock, and well below the 21.6% vacancy recorded back in 2014.

While both B-Grade and D-Grade stock have had relatively stable vacancy rates at around 11% for the past two years, the vacancy rate for C-Grade stock has increased significantly from 11% in July 2017, to the current rate of 15.1%. This rate is well above the historical average for C-Grade stock.  It has the highest vacancy rate of all office grades on the Gold Coast.

Vacancy Rate by Office Grade (July 2014 – July 2019)

Graph Three

Southport
Southport is the largest office precinct in the Gold Coast, with a total of 144,553 sq.m., or 31% of the total office market. With a vacancy rate of 15.1%, Southport has the highest vacancy rate of all Gold Coast office precincts. This is an increase on the 13.6% vacancy rate recorded in January 2019 and is above the historical vacancy rate average of 14.6%.

Robina-Varsity Lakes
The Robina-Varsity Lakes precinct is the Gold Coast’s second-largest office market on the Gold Coast with a total of 138,316 sq.m. or 29% of the total office market.

Robina-Varsity Lakes is the newest office precinct on the Gold Coast, with the first office buildings completed in 2003. Most of the new office space on the Gold Coast constructed within the last 16 years has been in Robina-Varsity Lakes.

With three ‘proposed’, or ‘under construction’ office developments totalling 14,446 sq.m. in the development pipeline, it is likely that Robina-Varsity Lakes will surpass Southport as the largest office precinct on the Gold Coast. Robina-Varsity Lakes currently has a vacancy rate of 13.2%, an increase on the 12% recorded in January 2019 and well above the historical average vacancy rate of 11.5%.

Bundall
Bundall has the third-largest supply of office space in the Gold Coast, with a total of 85,100 sq.m. or 18% of the total office space in the Gold Coast. Bundall has the second-lowest vacancy rate in the Gold Coast at 11.2%, an increase compared to the 9.4% recorded in January 2019 however, well below the historical average vacancy rate of 16.7%.

Surfers Paradise
Surfers Paradise has the fourth-largest supply of office space in the Gold Coast, with a total of 71,016 sq.m., or 15% of the total office market. Surfers Paradise has the lowest vacancy rate at 10.5%, an increase on the 9.8% recorded in January 2019 but well below the historical average vacancy rate of 18%.

Broadbeach
Broadbeach is the smallest of the Gold Coast’s office precincts, with a total of 30,833 sq.m. or 7% of the total market. With a vacancy rate of 11.7%, this is an increase on the 9.9% recorded in January 2019 which is above the historical average vacancy rate of 10.7%.

Office Precincts by Volume of Office Stock

Graph Four

SOURCE – Charter Keck Cramer & Property Council of Australia (OMR)

Future Supply

There is a total of approximately 5,900 sq.m. of new office space currently under construction and a total of almost 3,500 sq.m. of office space currently being refurbished on the Gold Coast.  

Approximately 4,500 sq.m. of the new office space has been pre-committed with Metricon agreeing to lease the first four levels of Building 1 at the Acuity Business Park which is currently under construction at 209 Robina Town Centre Drive (due to be completed by July 2020). A further 14,600 sq.m. of office space is planned beyond 2021.

New Office Space by Type (Planned, Under Construction or Refurbished)

Type of Space Area (Sq.m.)
Space Under Construction 5,937 sq.m.
Refurbishment 3,467 sq.m.
Space Being Planned 14,627 sq.m.
TOTAL 24,031 sq.m.

 

Office Development & Refurbishment Pipeline

Address
Suburb
Lvls
NLA (sq.m)
Developer
Construction Type / Status

Acuity Business Park
Building 1, 209 Robina Town Centre Drive
Robina45,937Alecon Pty LtdNew Development
(Under Construction)
Acuity Business Park
Building 1, 209 Robina Town Centre Drive
Robina33,627Alecon Pty LtdNew Development
(Early Planning)
The Base, 197 Robina Town Centre DriveRobina45,100Robina Land CorporationNew Development (Early Planning)
26 Lawson StreetSouthport62,900Bennon Pty Ltd & Dickie Investments Pty LtdNew Development
(Pre-commitment)
33 Scarborough StreetSouthport52,832Paradise Marina Management Pty LtdFull Refurbishment (Under Construction)

New development on the Gold Coast – especially between Broadbeach and Southport – tends to be concentrated around mixed-use residential high-rise towers.

With historical vacancy rates around 16%, there is greater demand for B-Grade office space than A-Grade quality space with limited demand for new office towers in Southport, Surfers Paradise and Bundall.  It is likely that developers will therefore look to offer quality office space in these precincts as part of larger mixed-use developments rather than seek to develop stand-alone higher-grade office buildings.

Most office developments constructed over the last 15 years and all three office buildings currently under construction or in planning stage, have been concentrated in the Robina-Varsity Lakes precinct.  It is likely that most future office buildings will be built there. An exception to this is a 6-level office tower comprising approximately 2,900 sq.m. of space that is proposed to be constructed at 26 Lawson Street, Southport and which notably, has also achieved pre-commitments.

Sales, Yields & Market Rents

The total value of sales of office buildings in the year ending June 2019 is down compared to the previous 12-month period.

With a total of $116.2 million in sales recorded across the Gold Coast office market, $73.1 million was for office strata sales across 93 transactions, and $43.1 million was for office buildings across 13 transactions. This compares with a total of $201.8 million for the year ended June 2018, with $155.2 million for office buildings across 23 transactions and $46.6 million for office strata across 89 transactions.

Annual Freehold & Strata Sales Transactions

Month
Freehold
No of sales
Strata
No of sales
Total sales
Jun-19
$43.1 million13$73.1 million93$116.2 million
Jun-18$155.2 million23$46.6 million89$201.8 million

Source: Charter Keck Cramer/Cityscope

While the total number and value of sales is down, the data shows that rates have increased slightly with an average of $3,749 per sq.m. for the year ending June 2019, compared with $3,267 for the year ending June 2018.

Significant sales for the year ending June 2019 include:

  • Lakeside 1, 1 Lake Orr Drive, Varsity Lakes & units 1101 & 1102 in Lakeside 2, 1 Lake Orr Drive, Varsity Lakes sold in one line for $25.1 million on an initial yield of 7.4% in June 2018 to Varsity Investment Fund, an investment fund managed by Argus Property Partners; and
  • 2 Short Street, Southport, sold for $17.5 million at an initial yield of 6.2% in September 2018.

Gold Coast office yields have been stable for the past two years, with office assets selling on yields ranging between 6.25% to 7.5%. Stable yields are forecast to continue.  Market rents for A-Grade office space have increased, with average net face rents up to $450 per sq.m. whereas incentives have slightly decreased. Conversely, market rents and incentives for B, C & D Grade stock have been stable with net face rents in the $230-300 per sq.m. range.

Market Outlook

The Gold Coast’s office precincts have experienced a rise in vacancy rates in the six months to June 2019 however they remain well below the average historical vacancy rate. This is reflective of a growing and diversified Gold Coast economy, improved business confidence, and relatively low rents.

There is only a small amount of new office space in the development pipeline, with this space mostly pre-committed. This will have minimal effect on vacancy rates which are likely to continue to remain at historical low levels in Surfers and Broadbeach given that there is no new supply planned in either precinct.

Robina-Varsity Lakes is likely to surpass Southport as the largest office precinct on the Gold Coast.  It should continue to experience relatively low vacancy rates and strong demand due to its proximity to strong public transport, easily accessible transport links such as the M1, ample car parking and closeness to the major retail services in Robina Town Centre.

Meanwhile, Southport may have seen recent increases in vacancy rates but long term, it is likely to maintain vacancy rates around the historical average as it will continue to function as the Gold Coast’s CBD and is serviced by major shopping centres and good public transport such as the light rail.