Coast Office Market Still Riding the Population Wave

As the national office market grapples with soaring vacancy rates, the Sunshine Coast continues to remain resilient with the second lowest vacancy rates in the country. High demand, tight supply, population growth and a strong economy continue to fuel the Coast’s office market momentum, yet again defying the national trend.

Against a backdrop of record low occupancy plaguing most capital cities and regional hubs, the Sunshine Coast maintains a tight grip on its office space, boasting a 5% vacancy rate, trailing only behind Hobart CBD. This is in stark contrast to the Covid-related highs of 21.9% in 2019, although rates have remained below 8% since January 2022.

Meanwhile the national vacancy rate has soared to 14.9%, the highest rate in almost three decades according to recent data released by the Property Council of Australia. Queensland office markets are the bright spark in an otherwise gloomy national market, with the Gold Coast recording vacancy rate of just 6.4% and Brisbane remaining relatively stable at 13.9%.

VIBRANT AND GROWING LOCAL ECONOMY

Paul Butler, RWC Noosa & Sunshine Coast principal, said that while many other regions were facing oversupply alongside weakened demand, it was the opposite for the Sunshine Coast.

“Demand for high quality spaces and the expansion of businesses are a tell-tale sign of a local economy growing in vibrancy. Take-up in the three key areas of the region – Noosa, Maroochydore and Caloundra – continues to be strong, led by professional services and medical businesses,” he said.

“There’s solid leasing going on between 100-300sqm and 500sqm for good quality businesses that want A-grade office space. Demand is coming from the full range of professional services – accountants, lawyers, IT companies, real estate agencies, medical and financial services. We’re still seeing new and recent arrivals bringing their businesses here or opening a second location while existing local businesses invest in more modern spaces to meet the evolving expectations of staff and customers.”

Ground floor A-grade office space is currently sitting at around $400 to $420/sqm net per annum in the Noosa to Peregian region. Rates are similar for A-grade office space across Maroochydore, with some new office developments in the new CBD attracting rates above $500/sqm. Lower end B-grade in key coastal areas ranges from $350 to $390/sqm.

Infrastructure investment, population growth and the desire to attract people back to the office are all having an impact on the demand for modern, well-appointed premium stock on the coast. But will the local office market continue to ride the population wave?

The Sunshine Coast is already one of the fastest growing areas in the country, with population increasing at over 2% annually since 2012 and achieving 2.7% growth to the year ending 30 June 2022. Early indications are that growth estimates of 500,000 residents by 2041 could be well understated.

OFFICES AROUND THE REGION

At the north end of the coast, Noosaville Medical and Professional Centre (home to RWC Noosa & Sunshine Coast) is one of the few and tightly contested options for A-grade professional suites north of Maroochydore.

GenesisCare is currently undertaking an extensive fitout in a 650sqm plus space to facilitate oncology services and treatment. And RWC recently secured a long term lease from Noosa Council for around 635sqm in the same centre. Both are expected to open for business in the second half of the year.

In Maroochydore and surrounds, there’s little office stock between 100-200sqm in key locations. RWC property consultant Tallon Pamenter said larger tenancies made up the majority of available offices, with vendors reluctant to divide spaces in case they could lease to a larger tenant.

“Maroochydore is sitting at around a 2% vacancy rate although some larger buildings that are due for renewal this year, as well as some developments that should be finished in 2024, could change that,” Tallon said.

“There have even been several off market leases secured in A-grade Maroochydore stock where we’ve seen multiple offers to secure a property with little or no incentive. In each case, the property has had not only a great location but a nice fitout.”

Cotton Tree is emerging as a preferred location for professional services, medical and allied health. The area is tightly held and for good reason, being in close proximity to the Court House, local cafes, local bars, cafes, restaurants and high-end residential apartments. 

A lack of office stock is a perpetual issue in Caloundra, with many service businesses turning to retail space in central areas like Bulcock Street or converted houses in fringe positions.

“Caloundra needs quality office space,” says Paul Butler. “One or two nice commercial buildings in Caloundra with modern office fitouts would likely be appealing. Currently there are many owner occupied properties around town. As these change ownership over time, we may start to see more developments include office space as demand continues to grow.”

THE SECONDARY OFFICE CONUNDRUM

Consistent with experiences in other locations, B, C and D-grade properties on the Sunshine Coast are likely to be on the market for longer than their A-grade counterparts, especially those on the fringes of towns and villages. It’s a phenomenon Ray White Commercial researcher Vanessa Rader refers to as the “secondary office conundrum” and is happening as the flight to quality continues.

Vanessa reports that  “B-grade has yielded the most difficult results hampered by backfill issues, followed by C-grade due to continued tenant losses and growing vacancies while the small D-grade market remains stable. This raises the question: what do we do with these secondary office buildings?”

Paul Butler says in a competitive market, owners of secondary office properties need to make smart decisions and plan ahead.

“There’s still a market for the B and C-grade properties. However, unless you’re thinking of a complete renovation, it becomes a more at risk asset because the tenants you get are either lower quality or if they’re good quality, someone will poach them out into a better quality space.”

“If you have C-grade office in your portfolio it’s probably time to consider its possible future uses and consult with someone about where the market lies for it in the next three to five years,” Paul said.

With demand for high-quality spaces persisting across key areas like Noosa, Maroochydore and Caloundra, opportunities abound across the Sunshine Coast for investors and businesses alike. While challenges such as the “secondary office conundrum” pose considerations for property owners, strategic planning and adaptation remain crucial in maximising asset potential. As we look ahead, the Sunshine Coast’s office market remains well positioned to capitalise on its strengths, attracting both local and external interest driven by continued high yields, population growth forecasts and the allure of the coastal lifestyle.

For chat about your commercial property or the market in general, get in touch with our team on +617 5474 7600.

Offices in NOOSA | CALOUNDRA | MAROOCHYDORE

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