What’s Next for the Hottest Office Market in Queensland

The Sunshine Coast office market is the hottest in Queensland and is one of the strongest in Australia. It’s no surprise to those of us who live and work here. We know we’re onto a good thing. But from the outside looking in, significant infrastructure investment underway, high levels of business confidence and comparative resilience in the face of a global pandemic all add to the region’s reputation as a great place to live and do business.

Research shows the region’s real estate, including the commercial market, is at the peak of its cycle, well ahead of most other locations.

But with more than a billion dollars worth of infrastructure investment committed, including a new Maroochydore City Centre and the recently completed Sunshine Coast Airport upgrade, office market momentum shows no signs of abating. The region is cementing its status as one of the country’s most attractive places for forward-thinking businesses.

We explore what’s happening in the office market now and what its future might look like in one of Australia’s fastest-growing economies.  

SUNSHINE COAST OFFICE MARKET SNAPSHOT

While the rest of the eastern seaboard continues to be at the mercy of COVID-19 lockdowns, Queensland and the Sunshine Coast have remained comparatively open.

According to NAB’scommercial property index, recovery in the Australian commercial property market continues on a “slow burn”, mainly led by industrial property. National office values are expected to fall -0.4% in 12 months before growing just 0.3% over two years, primarily driven by growth in the sunshine state.

Queensland is the only state where office confidence is positive (up 8 points), with values expected to grow by 1.9% per year over the next two years. Office rents are similarly buoyant, with 1.1% growth predicted in the next 12 months, increasing to 1.7% over two years.

The Sunshine Coast has escaped the trend of soaring office vacancy rates evident across the country, with January vacancy rates of just 13%.[1]

While demand puts pressure on available stocks, sale and lease pricing remain attractive compared with capital cities. A-grade tenancies are averaging around $400sqm, and B-grade is achieving around $310-$350sqm. A-grade yields average out around 6%, and 6.5%-7% for B-grade.

LIFESTYLE, HIGH-SPEED INTERNET AND LOWER COSTS

There’s little doubt demand for office space is being fuelled by population growth. The Sunshine Coast is one of Australia’s fastest-growing regions. Population grew by 2.5% in the 12 months to 30 June 2020, fuelled mainly by interstate migration.[2] The region is expected to be home to more than 500,000 people by 2041.[3]

Ray White Commercial Noosa & Sunshine Coast North Principal Paul Forrest says the flow-on effects of population growth are already being felt and will continue into the future.

“Population growth leads to infrastructure growth which in turn increases demand for government agencies and associated services. Ultimately it achieves a critical mass where large agencies need significantly bigger footprints which we are starting to see in the demand for space in the new Maroochydore City Centre,” Paul says.

Lifestyle was always a key driver. With 300 plus days of Sunshine a year and some of the country’s most stunning beaches, the region has a reputation for a clean, healthy and active way of life. As COVID-19 continues to transform the way we live and work, businesses are turning to different structures such as satellite offices or hub-and-spoke models, making setting up shop in regional locations even more appealing.

“The Sunshine Coast is an ideal base for people looking to move professional services businesses from Melbourne or Sydney to a regional area,” says Paul.

“Stockbrokers, accountants, engineers, all sorts of knowledge-based business owners are making a lifestyle move and setting up premises here. They can live in a beautiful part of the hinterland or coast, work from a beachfront office in Cotton Tree, and it’s only an hour and a half by plane to Sydney. It’s like FIFO for professional services.”

The new Sunshine Coast International Broadband Network amplifies the region’s appeal to knowledge-based businesses, offering the fastest connection to Asia from the east coast and the second fastest to the US. Queensland businesses can bypass Sydney and connect direct internationally, delivering speed and diversity essential for tech-based businesses and startups.

Lower cost of doing business is also a key drawcard. Aside from reasonable rental rates, Queensland has the lowest basic flat payroll tax of any Australian state or territory, lowest average workers compensation premiums on the east coast and lower workforce costs than Victoria and NSW averages.[4]

WHAT’S HOT RIGHT NOW?

Demand for office space is consistent right across the region but supply tends to be focused around several key areas: Noosaville, Maroochydore, Cotton Tree and Birtinya which is near the $1.8 billion Sunshine Coast University Hospital.

Tallon Pamenter, Ray White Commercial Noosa & Sunshine Coast North Maroochydore commercial property consultant, says Maroochydore stock is being snapped up in a heartbeat.

“While there’s a lot of buzz around the new CBD, prices there are slightly higher than they have historically been on the coast so fringing office properties around the CBD are highly sought after, especially those which offer a better parking ratio,” Tallon said.

“We’re currently seeing demand from both interstate and local businesses. We’ve handled COVID quite well here on the coast, and with so much construction fuelling the economy, many local businesses are thriving and looking for larger spaces to grow into.”

Modern businesses want more for their staff than a daggy old office and competition is hot for new and refurbished A-grade premises with flexible floor plates, natural light and modern facilities.

UPGRADE OLDER OFFICES NOW TO REMAIN COMPETITIVE

Owners of older properties may benefit from upgrading or refreshing older office buildings now to ensure maximum returns as demand soars.

“Businesses are actively seeking out spaces that are energy efficient, non-toxic and have good lighting and airflow,” says Paul. “If you have an older building and can retrofit, I’d certainly recommend considering that. Many businesses are conscious of the ecology of a building and seeking spaces with lower environmental footprints that contribute positively to staff wellbeing.”

Noosa commercial property consultant David Brinkley says even basic upgrades can make the difference between an office getting snapped up or left behind.

“A lot of clients are looking to secure something with an existing fitout they can fine-tune rather than completely refit. You don’t have to spend a lot of money getting a space up to scratch. If you want to pick up a high quality tenant with a longer-term lease, upgrading flooring and repainting can be enough to get it across the line.”

“Another thing to consider is access. We’ve had a couple of first floor premises without disabled access sitting a bit longer. Some owners are making their premises accessible by installing ramps or other accessibility features that deliver better rental rates and quality of tenants.”

THE FUTURE LOOKS BRIGHT

The greenfieldsMaroochy City Centre currently under construction is a collective smart-city vision between Sunshine Coast Council, Walker Corporation and SunCentral. The project will deliver 160,000sqm of commercial and retail space, plus 4000 residential apartments over the next 15 to 20 years.

Foundation Place, the first major building to come out of the ground, was fully tenanted at record speed. ASX listed electricity provider LPE signed up for a whole floor to accommodate around 75 staff.[5]

More buildings coming out of the ground will translate to more A-grade office space, which Tallon expects to be taken up by large professional services firms.

“Quality businesses, such as larger accounting and legal firms looking for A-grade office, will be drawn to the area due to the prestige of the location and quality of the build. The additional services and amenities in the newer buildings like end of trip facilities for staff and modern spaces will appeal to city-based firms that want to set up additional or satellite offices,” Tallon says.

The health and wellbeing sector is already the region’s largest employer, and more than $2 billion has already been invested in healthcare infrastructure across the Sunshine Coast Health Precinct.[6] A growing and ageing population means opportunities abound for health, medical and allied health businesses. 

“As our population grows, so will demand for health care which will continue to be a serious growth area,” says David Brinkley. “I expect to see specialist fields like oncology, IVF and cosmetic surgery taking up bigger spaces and starting to move from interstate. We’re also starting to see local medical and allied health providers shifting around and expanding, opening second operations to cover the Noosa end of the market.”

The Sunshine Coast education sector is an important employer and supports the evolution of higher value and knowledge intensive industries.[7] With demand for educational services expected to increase by more than 50% by 2033, the footprint of education offerings such as English colleges, university campuses will grow substantially.

“Many education businesses have had to shut their doors due to COVID but we expect they will make a comeback. The Sunshine Coast already has a solid reputation as a place to learn English and the way we have handled the pandemic has just added to the appeal,” Paul says.

There are already almost 40,000 businesses across the Sunshine Coast and Noosa local government areas, many of which are small businesses. As more consultants, IT providers and tech-based professionals move to the region, flexible smaller spaces of 50-60sqm that offer something a little bit interesting or quirky will be sought after.

Think flash and funky with water views and Google-esque styling, throw in a pool table and you’re right on the money. While co-working spaces abound on the Sunshine Coast, this market is likely to be seeking something a little more permanent, giving developers food for thought.

While no one can predict the future, the Sunshine Coast’s impressive credentials, reputation, and a foundation of investment that’s driving a continuously growing economy are expected to keep pressure on the already hot office market well into the future.

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[1] Allison Worrall, Commercial Real Estate,Why the Sunshine Coast office market is one of the strongest in Australia, 10 June 2021.  [2] id.Community Sunshine Coast, Estimated Resident Population, 30 June 2020.  [3] Queensland Government Statistician’s Office,Queensland Government population projections, 2018 edition: LGAs and SA2s,  [4] Sunshine Coast Council Investment Prospectus 2019, p.7.  [5] Charles Hodgson, View News,Major ASX listed firm commits to Foundation Place as doors set to open, 12 November 2020.  [6] Sunshine Coast Council Investment Prospectus 2019, p.60.  [7] Sunshine Coast Council Investment Prospectus 2019, p.64.