Central Equity’s $500m Pacific One project abandoned as construction costs soar

A wave of high-rise developments face cancellation after a leading developer abandoned a $500 million Gold Coast tower project because of the crisis in the construction sector.

The Pacific One Gold Coast showroom and site in Frederick St Surfers Paradise after the tower was canned.

The futures of a number of planned high-rise apartment towers are in doubt after a leading Melbourne developer abandoned plans to build a $500m apartment tower on the Gold Coast claiming the crisis in the Queensland construction industry made the project unviable.

Construction was due to start this year on Central Equity’s 56-storey Pacific One tower in Surfers Paradise which would have featured 486 apartments starting at $650,000 each.

However, in a statement Central Equity said it felt it was better to move proactively and not proceed in a climate of “such economic turbulence” which has seen industry sources claiming that unit prices needed to rise by 20 per cent to cover increased labour and building costs.

An artist's impression of the ground floor of Pacific One.

Central Equity said it made its decision after ongoing discussions with builders and quantity of surveyors regarding the global supply chain turmoil and Queensland’s construction industry crisis.

“The malaise facing builders, including staff shortages and supply chain disruption, has resulted in the unprecedented escalation of construction costs for developers, making Pacific One economically unviable,” it said.

“The decision was not a demand-side issue, and all deposits will be returned to buyers and prospective buyers.”

Ray White had been appointed to market the project and the real estate giant’s Surfers Paradise Group chairman Andrew Bell said that Central Equity’s decision was a rational

and mature one.

“Central Equity are being prudent in holding the site for future development,” he said.

Hutchinson Builders chairman Scott Hutchinson said he expected more high-rise projects to be pulled in the planning stages because of rising construction and labour costs.

“These projects take so long to build and only certain builders can take them on,” he said.

Mr Hutchinson, who is the boss of one of Australia’s biggest private building companies, said heavy rain combined with lots of projects meant subcontractors were thin on the ground.

“The subbies are not gouging but the problem is all their top guys are spread over too many different projects,” he said.

“We are hearing that more projects will be cancelled and that is a good thing because it will allow the market to settle down.”

Tim Gurner, whose eponymous firm has plans for a $1.75bn development at Budds Beach near Surfers Paradise that includes three residential towers, believes construction costs are becoming unrealistic and causing project delays.

“I think the trades have had a huge amount of tenders come up over the past 12 months that will now not get built (because of the rising costs) and that the future work pipeline has now dried up,” he recently told The Australian

“So they soon will be very keen for work again and be more competitive in their pricing, which is needed. We just need to get that balance right for everyone.”

The Pacific One Gold Coast showroom and site in Frederick St Surfers Paradise after the tower was canned.

IBISWorld senior industry analyst Matthew Reeves said the construction industry had been plagued by rising crude oil and electricity prices, as well as supply shortages in key goods, most notably timber.

“Numerous flood events in New South Wales and Queensland have exacerbated these issues over the past six months,” he said.

“The floods have disrupted the import and transport of goods around Australia, and have damaged and delayed building projects.”

He added that supply shortages and cost increases had proved overwhelming for many firms, causing individual businesses to collapse. However, small and bespoke construction firms were more nimble and less susceptible to supply chain disruptions.

Pacific One was to be Central Equity’s first apartment project outside of Victoria.

The company, founded by Eddie Kutner, Dennis Wilson and John Bourke, is considered a pioneer of inner city living. It has completed more than 80 high-rise towers since it started in 1987.

This month they have effectively completed a 590-apartment project in Melbourne and have a second tower under construction on a fixed price construction contract, meaning both projects were not exposed to construction price escalation.