The Gold Coast office market is facing a shortage of office space within the next three years with a lack of new developments in the pipeline. Despite an increase in the region’s office vacancy rate – up from 6 per cent to 6.3 per cent in the six months leading up to July – the situation appears to be far from easing.
According to Colliers, the first half of 2023 saw a 16 per cent increase in net absorption of office space, equivalent to 6,534 square metres. This surge was, however, offset by new office space hitting the market.
Currently, only 29,157 square metres of vacant office space remain within the Gold Coast's total stock of 462,373 square metres. At the current rate of uptake, which stands at 12,000 square metres, it's anticipated that the supply will run out in just three years.
Steven King, the Director-in-Charge at Colliers Gold Coast, said he was concerned about the impending office space shortage. "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," Mr King said.
"Given the limited supply expected over this period and continued strong demand, the vacancy rate really has nowhere to go but down." Mr King said that only 2,200 square metres are expected to become available on the market for the remainder of the year.
The lack of supply can be attributed to the challenges of high construction costs, labour shortages and increased borrowing costs. As a result, there are no new projects on the horizon for 2024 and 2025, which could potentially place the Gold Coast office market in its tightest position on record.
One notable exception is the V & A Broadbeach project, which is set to deliver 5,500 square metres of office space in 2026, while several other proposed developments remain on hold for the time being. The report also highlighted the dominance of A-grade office buildings within the Gold Coast office market. These buildings boast the lowest vacancy rate of any office grade, at 4.6 per cent.
The net absorption of office space is highest within this category, driven mainly by the uptake of newly constructed buildings.
The tightening vacancy rates and dwindling supply have led to a significant impact on office rents. A-grade rents have surged by 6 per cent over the past year, reaching an average of $518 per square meter in June. Secondary stock has also seen growth, albeit slightly higher at 8 per cent, with an average rental rate of $445 per square metre. This increase is primarily due to strong demand from the SME market.
Additionally, Gold Coast office rents have experienced strong quarterly growth, with the most substantial increase observed in the June quarter, indicating a heightened demand-supply mismatch.
Low vacancy rates are likely to drive further rental hikes and reduce incentives offered by landlords. Additionally, tenants are making quicker decisions in response to the tight market conditions.
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