Fresh eyes:
This is another disappearance of a very young person, last seen exiting a bar. There are a quite a few of these, both men and women. They simply vanish, last seen at a bar. Also, there's the hostel-factor (in this case, apparently no close friends at the hostel who would have gone to police earlier).
It sounds like the early search focused on the obvious misadventures (land and sea). But I'd say this is a criminal investigation. Someone knows something.
The family might want to speak to one of the major podcasters (Someone Knows Something, Unresolved, Cold Case, there are many others). Generation Why does this kind of case and has a vast audience. There aren't enough details (yet) for it to go to Casefiles.
What size town is Byron Bay? Have any tourists ever been robbed there? Is this mostly a resort town or does it have its own local schools, etc? Would young locals have been at the same bar?
The family should also consult with local police about sources of DNA that might be available, if they have not already. By that I mean, sources of Theo's DNA (which could include simple, fairly inexpensive testing of the two parents).
Leaving a bar at 11
o pm'ish and then going to see a sunrise implies a great deal of energy (and frankly, some companions).
I'm learning that cadaver dogs are pretty rare, so I'm guessing sniffer dogs? I'm not caught up on this case, but the family needs our energy. Feel free to correct anything I've said that's wrong (and if it's already been discussed, that's okay - I'm still reading all of Thread 1).