Gold Coast office market shrugs off slowdown: HTW Commercial

Agents report that conditions within the Gold Coast office market have been slowing for a while now, according to the latest report from property valuation firm Herron Todd White.

The report found, that exacerbating this sentiment in 2019 to date was the Royal Commission into misconduct in the banking, superannuation and financial services industry and the federal government election campaign.

However after a marketplace hiatus over this period (February to May) the impact of these events seems to have well and truly passed and business appears to have moved back into normal mode once again.

The HTW valuers said, "continuation of the low interest rate environment, with rates reducing yet again, is certainly a positive for the market place in a general sense."

"To date in 2019, we have seen settlement of several sizeable office building transactions."

In January: 130 Bundall Road, Bundall. 3,682 square metre lettable area on a 2,226 square metre site at $11 million (source: CoreLogic). 70% occupied and reflecting a WALE of 2.16 years (by income). Passing yield circa 5.43%. Analysed yield 7.34% (with 7.5% PVA). $2,988 per square metre on floor area. Owner-occupier buyer.

In March: Lakeside 1, Bermuda Point, Lot 1101/1 Lake Orr Drive, Varsity Lakes. 6,114 square metres lettable area on a 7,916 square metre site at $25.1 million (source: CoreLogic). Reported as circa 96% occupied and returning a net passing income in the order of $2.285 million. Based on these metrics, passing yield would be in the order of 9% with a lettable floor area rate of circa $4,105 per square metre, although we consider the passing rental level full.

In May: 169 Varsity Parade, Varsity Lakes. 3,364 square metres lettable area on a 13,000 square metre site at $14 million (source: CoreLogic). Fully leased and reflecting an estimated WALE of 1.38 years (by income). Passing yield circa 8.73%. Analysed yield 6.85% (with 5% PVA). $4,172 per square metre on floor area. Considered a future residential redevelopment site.

In August: Confidential. Circa 2,500 square metres lettable area U/C exceeding $8 million. 95% occupied and reflecting a WALE of 1.5 years (by income). Will reflect a passing yield of circa 7.6%.

HTW valuers said, "several other larger office buildings have also been put to the market place. All have drawn interest from prospective buyers."

"Based on bone fide offers received, interest in the Gold Coast office sector would appear to be holding firm, although our observation is that yields may be softening slightly, to analysed yields ranging from 7.25% to 8%."

"Supply of larger office floor space (1,000 square metres plus) has been hampered on the Gold Coast for some time now due in the main to no new office buildings being developed."

"The lack of new buildings has attracted entrepreneurial investors to older buildings in the Gold Coast’s older established office precincts such as Southport, Bundall and Surfers Paradise," stated the valuers.

The Property Council of Australia July 2019 Office Market Report indicates a total vacancy factor for the Gold Coast of 12.9%.

This is up from 11.6% in their January 2019 report. Leasing agents had noted a tougher first half for 2019, but expect the second half to be better.

The report authors said, "the negative net absorption of -6,850 square metres is attributed to businesses consolidating into smaller premises, etc.

"Overall, we consider the increased level in the Gold Coast vacancy factor may dampen some investors’ views of the Gold Coast office sector, with the result being solidification of slightly higher yields, but on the positive side of the ledger, rental rates appear to be achieving moderate gains."

"So all in all, the bottom line is likely to be retention of asset value levels over the remainder of 2019," they concluded.