August 2015 – Gold Coast Strata Office

13 August, 2015 / Vanessa Rader and Steven King

The Gold Coast Strata Office market has benefitted from the improved market sentiment witnessed across the various property markets during the last year. Increased investment by both local and off shore developers highlight the long term confidence in the region which has flowed through to improved office results.

Economic conditions have slightly improved with employment demand up resulting in the overall office vacancy reaching a 7 year low of 14.8%. The strata market continues to benefit from the low interest rate environment resulting in capital values for the strata market now back to 2009 levels averaging $3,450/sqm.

The vacancy position of the Gold Coast has been steadily improving over the past few years after the total market result peaked at 23.3% in July 2010 falling to its current low of 14.8% in July 2015. Some markets have fared better than others, with the best performer this period being Broadbeach recording vacancies of just 4.2% however Varsity Lakes/Robina have witnessed a dramatic drop in vacancies from 28.7% during January 2010 to its current low of 8.6%. This market however is home to modern accommodation which is in greater demand compared to the secondary accommodation in much of the Gold Coast. The smaller markets of Surfers Paradise, Broadbeach and Bundall have had more varying results pending quality, size and location of stock. Southport has been a steady performer with vacancy flat over the last 18 months, currently 14.0% which is still well below the 22.3% recorded in July 2010. Whereas the Surfers Paradise market has increased to a new high of 29.9% in this period, despite this, the overall average Gold Coast results have improved now averaging 14.8%.

There is a high volume of strata office property spread across the Gold Coast region, major office locations include Southport, Surfers/Broadbeach, Bundall and the most recent office precinct to the area Varsity Lakes/Robina. Over the past ten years, the highest volume of sales has come from development in this new location together with new assets within Southport. Southport has been recipient to the greatest volume of new stock in the period immediately prior to the GFC, which had an immediate negative impact on this market. With a large volume of new or under construction stock, high settlement risk, finance issues and high vacancies; this resulted in capital values needing to reduce quickly to absorb stock. This has improved over the last two years with the average values now showing first signs of improvement; during the first half of 2015 sales volumes are well split across all the precincts with $9.7 million changing hands representing 23 transactions.

The limited demand across most Gold Coast markets has had a devastating effect on capital values for many markets during the past couple of years. However, the first half of 2015 has resulted in some strong improvement in capital values with all markets showing some upward momentum as the local economic indicators recover. Current average values have shown some rebound to $3,450/sqm after dipping to the low of $2,640/sqm in 2012; this still well behind the highs achieved pre GFC which averaged $5,390/sqm. The Varsity Lakes/Robina market also resulted in an immediate fall in values post GFC falling from $5,280/sqm in 2008 to $4,440/sqm the following year, a stable value was achievable for this region the following years before falling more recently and now on the improve averaging $3,520/sqm. Markets with limited transactional activity such as Bundall and Burleigh/Coolangatta have shown a more stable result in average capital values, albeit showing some negative affects to the economic slowdown of the 2008-2011period. These markets have shown good increases over the last year, albeit the small size of the market does ensure these regions do show some volatility in values, Bundall currently averages a value of $2,980/sqm with Burleigh/Coolangatta averaging $4,360/sqm.

The Gold Coast market has witnessed a prolonged period of stability post GFC where face rents saw a large decline of over 30% for some markets. While face rents decreased, the incentive position swiftly increased to over 30% for some assets resulting in the overall effective rental position falling by as much as 50%. Encouragingly for the Gold Coast is the improvement in market sentiment; this has resulted in face rents remaining steady while incentives have decreased to average in the 15% to 25% range. A grade office accommodation currently averages in the $410-$430/ sqm range however the smaller suite market currently averages a gross face rent for better quality assets at $360/sqm while the secondary offerings remain in the $254/sqm price bracket.

Confidence in the Gold Coast has now turned a corner; a combination of improvements in investment into the city by both government, local and international investors have aided in rejuvenating sentiment. The tram project has now been completed improving access to Southport and the spotlight has moved to the Gold Coast as the 2018 Commonwealth Games host. The broader office market is benefitting from this upturn in sentiment now recording vacancies at a 7 year low while reducing incentives are having a positive influence on effective rents. While, strata office capital values are still well behind historic highs they are all seeing strong upward momentum which is likely to continue given the current low interest rate environment, this may also see owner occupier investment back into this market doing more for these improving values and volumes.

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