Jared Hodge, Principal, Ray White Commercial GC South[/caption]
Gold Coast commercial property is one to watch in 2017. Investors in the area and even those in other cities and states should keep a close eye on the market because there are lucrative opportunities available in the right places. Jared Hodge, Principal at Ray White Commercial GC South, manages a large team of customer-focused agents and has his finger on the pulse of GC property at all times. We've tapped into his vast market knowledge to give you a deeper understanding of state of play in this area.
This is a vital insight - with commercial property on the Gold Coast you must know where, when and what to buy as an investor, otherwise you may expose yourself to risk thanks to rising vacancy rates and other factors. Let's take a closer look.
What are investors focusing on?
In general, the Gold Coast commercial market is suffering from a shortage of stock. This is perhaps due to a self-fulfilling prophecy:
"Investors perceive that there's nothing in the market to replace their current investment, so they're not selling," Jared said.
As a result, owners are holding on to their properties, further contributing to a supply shortage and low sales turnover. Jared supposes that this has shifted the focus of investors:
"They're focusing on anything with income. Maximising long-term yields and income are essential in this current environment as on-selling may not be an easy task thanks to low supply."
It also appears that the market is going to stay firm despite the shortage of supply relative to demand. This is promising for the sustainable future of the city and its property market.
How are the commercial and office markets faring?
Leading up to the Commonwealth Games and with the opening of Pacific Fair, Gold Coast employment is looking solid. In fact, Economyid shows that unemployment in the area is trending downwards, which bodes well for the office market.
Despite this, our September report shows the capital value trajectory for Gold Coast strata offices appears to be going downwards - continuing the trend which started in late 2007 where values peaked. Surfers Paradise has seen sharp value drops of 22.75 per cent, whereas the Gold Coast average has fallen by a less drastic 7.85 per cent. Robina and Varsity Lakes are the only areas to record a value increase, jumping by just under 1 per cent to $3,824/sqm.
This could indicate that demand is higher amongst investors for premium office buildings with prime locations and modern fit outs, a trend that should be considered when buying.
On the other hand, vacancy rates appear to be increasing, particularly amongst premium office buildings. This July vacancy rates for the entire Gold Coast have increased slightly to 14.3 per cent since January, whereas prime office space vacancies increased almost 3 per cent to 18.4 per cent. With rents remaining fairly flat and capital values dipping, it's more important than ever that investors pay close attention to the market, their tenants, and rental incomes before buying. With the right information, investment in the Gold Coast office market can still prove lucrative. Due in part to uncertainty in the office market, retail is emerging increasingly as an investment opportunity:
"Retail vacancies have gone from 9 per cent to 5 or 6 per cent - a large decrease. It's a very hot market at the moment. However, it's hard to find a good centre to develop and add value to."
What's going on with industrial?
Sales turnovers in the industrial sector are very low so far in 2016, much like the office market. There has only been over $285 million in commercial sales over the year ending July, down from $715 million during the same period last year.
However, Jared implies that these value changes will not be as drastic or as worrying as they have been in the past:
"We're unlikely to see value gains like we did in 2005 and 2006, or a crash like we did in 2007."
Interestingly, hotel and leisure assets represented almost 40 per cent of total sales. This figure may be buoyed by reports of a profitable 2015 for the hotel industry that saw revenue increase by over 9 per cent, according to a Griffin University report.
The forthcoming Commonwealth Games may present a sector of increasing interest to investors. This could affect the demand for such property, and the capital value of the current stock.
Demand for retail assets in the GC is reliably high, resulting in a compression of yields bringing the average for the six month period ending July to between 4 and 8 per cent. Increasing demand may cause capital values to rise amongst retail assets, providing investors with an upside and a buffer against ongoing yield compression.
What does it all mean?
Overall, the Gold Coast commercial market is looking solid, despite increasing vacancies and value decreases in some sectors. Investor focus has turned from capital gains, and securing blue chip tenants to finding a property with solid income and decent yields, which has kept sales turnover down. However, Jared suggested that lower-end investors are also focusing on finding something with an upside:
"It's essential that lower end investors focus on the long-term view, something with an upside. If you're highly leveraged you may come unstuck when interest rates eventually rise."
The changing nature of the market necessitates that investors are knowledgeable and well-advised as the wrong purchase could carry a lot of risk. On the other hand, with sound advice and strategic planning, profitable investment is still distinctly possible on the sunny Gold Coast.
For further info on the Gold Coast market, see Vanessa Rader's research paper here.
