GOLD COAST OFFICE VACANCY FINALLY FALLS

While the news is positive, it will take some years before the market returns to equilibrium according to a report released today by CB Richard Ellis (CBRE).

CBRE researcher Craig Godber says it will be a slow recovery with tenant enquiries dominated by smaller requirements of 200sqm and under.

“Until vacancy levels ease significantly from their current highs, scope for capital value growth and rental increases in strata-titled product remains limited,” says Godber.

“There is also little likelihood of any major stock additions in most precincts until the vacancy rate drops significantly. The one exception could be Robina Town Centre given the strong take up of stock that is currently occurring in that precinct.”

Strata title offices are a significant component of the overall Gold Coast market, accounting for some 31 per cent of total office space – or 145,100sqm.

This compares to about a 4 per cent share of total office space in the Brisbane CBD, a 10 per cent share in Sydney and near 6 per cent share in Melbourne.

The largest amount of Gold Coast strata space is in the Robina and Varsity Lakes precinct (54,400sqm); followed by Southport (45,400sqm); Surfers Paradise (22,300sqm) and Bundall (21,800sqm).

The stock ranges from older, pre-1990 product in areas such as Bundall and Surfers Paradise to recently completed grade A space in high rise buildings such as Southport Central and The Rocket, which has achieved a 4 Star Green Star rating.

Of the current stock, 64 per cent, or almost 93,000sqm, was added between 2005 and 2009 with no new additions in 2010 or 2011.

CBRE office services senior director Tania Moore says the health of the strata sector is critical for the city’s commercial property market.

“There has been a significant reduction in the strata vacancy rate, which reached a record high of 30 per cent at the start of 2010,” she says.

“This dropped to 22.6 per cent as at the start of 2011 and 19 per cent as at July this year – representing the first two declines in the vacancy rate since 2005. Take up has been particularly strong in Robina, primarily at The Rocket.

“Investment market conditions have encouraged Robina Projects to favour a leasing campaign rather than a sales campaign. This has led to a quick tightening in the Robina/Varsity Lakes vacancy rate, which now sits below 10 per cent.”

Moore says the leasing campaign at The Rocket allowed tenants to access a market that had traditionally been tightly held by owner-occupiers.

Leases concluded at The Rocket includes Allconex Water with five floors (3,533sqm), which was the third largest lease ever recorded on the Coast and the largest in strata product.

CBRE’s report shows that Southport Central still accounts for the greatest share of vacancy strata stock, with more than 11,500sqm still unoccupied as at July 2011.

However, Moore says a number of lots at Southport Central Tower 3 had sold or were under contract to both investors and owner occupiers.

“The owner-occupier sales will result in a further reduction in vacancy, while tenant demand from small businesses is expected to be solid for the investor held stock,” she says.

Local businesses are reporting favourable leasing conditions. Recently media company Southern Cross Austereo (SCA) moved its Southport radio and television studios to the Oracle residential development in Broadbeach.

DTZ managing director Cameron Wilson negotiated the 10-year lease for the broadcaster of Southern Cross Ten, Eleven, One, 92.5 GoldFM and 90.9 SeaFM.

The new office space covers 2000 sqm across one level, which is larger than the former 1750 sqm space covering two floors at its former premises at Seabank Building in Southport.

“The bottom-line was cost and having radio departments interact with each other. The Southport location was not very conducive for that and the facilities were very old and tired after being there for 22 years,” says SCA general manager Paul Bartlett.

SCA has invested about $4 million in constructing four new radio studios, five radio production studios, one TV studio and three TV production studios.

Leasing agents DTZ and Bayliss & Samra were appointed by the receivers KordaMentha to market the property.

Investment

On the investment front, CBRE’s Viewpoint report highlights that over $484 million worth of strata titled office property has transacted on the Coast since 2000. However, sales activity has slowed considerably in recent times.

Sales in 2010 tallied just under $50 million, boosted by more than $25 million worth of sales at Southport Central – mainly in Tower 3 – with many of these sales not settling until well into 2011.

So far this year just over $11m worth of sales have been registered, including the settlement of further sales at Southport Central.

Moore says some distinct variations in capital values had emerged with capital values for grade A product ranging from $3250/sq m to $4000/sq m in Robina Varsity Lakes to between $2500 /sq m and $3500/sq m in Southport, where prices have been impacted by the receiver sell-down of stock in Southport Central Tower 3.

These values have declined from rates as high as $5000/sq m to $6000/sq m at the market peak in late 2007/early 2008.

Secondary stock was meanwhile achieving rates in the order of $2000/sq m to $2750/sq m as at September 2011.