Commercial Real Estate in Sydney: A Case Study of Castle Towers

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Contents
1. Introduction.........................................................................................................................................2
2) Commercial Real Estate in Sydney...........................................................................................................2
3) The Regional and Sub Regional Commercial Retail Property Market of Sydney...................................2
4 Castle Towers...........................................................................................................................................3
4.1 Castle Tower: Infrastructure and Accessibility..................................................................................4
5 Financial Markets and the Supply of Commercial Real Estate in Australia in the Posts Global Financial
Crisis Period................................................................................................................................................4
6. Australia Economy: Lending Rates and Wages.......................................................................................5
7. The Expansion of Castle Hill Towers and Future Deveopment..............................................................7
8 Competition and Coping Up Strategies....................................................................................................8
9 Outlook for the Future..............................................................................................................................8
10 Conclusion..............................................................................................................................................9

1. Introduction
The Castle Towers shopping center in the sub region of Castle Hill in north Sydney is one of the
biggest shopping centers in the country. In the midst of an expansion, this shopping center has a
turn over of millions of dollars per day. In a world where commercial shopping centers are
struggling to make spaces worth the rent, the Sydney market is increasingly showing growth in
terms of rental prices. This report contains an economic evaluation of one such commercial
property the Castle Towers in Castle Hill.
2) Commercial Real Estate in Sydney
Compared to global giants, Sydney has a relatively small office stock, a measure to understand
the supply of office. In the year 2016, the prime yields of the commercial real estate space were
slightly over 5%, thank to the high liquidity cycle that has been maintained in Australia, since
2010. Sydney, as a market, is attractive to businesses thanks to a relatively high degree of
economic freedom in the city as well as the availability of talent pool. (Cushman and Wakefield
Capital Markets). The city has a talent pool of educated, English speaking young population.
This adds to the attractiveness of the job market, which is inherently linked to retail spending.
In addition to this, Australia is generally supportive of Free trade Agreements and general
business. As Australia’s trade ties grow stronger, Sydney as a market stands to gain, being one of
the topmost commercial cities of the country. (Cushman and Wakefield Capital Markets)
Cromwell Funds Management, (2017) has expected the vacancy space in commerical spaces in
Syndney to remain at less than 5%, while the growth of new stock of real estate property keeps
declining. The direct result of the increasing business, is the availability of a working
professional population. The deep pockets, combined with the low interest rates that make easy
credit available for spending, will hopefully trigger a boom in retail and leisure spending.
(Cromwell Property Group, 2018)

3) The Regional and Sub Regional Commercial Retail Property Market of Sydney
The average expected yield in the sub regional retail sector was 6.03% in the first quarter of 2017
and is estimated to be at 6.13% during the corresponding period in 2018. (Colliers International,
2017)
The average Gross Face rents in New South Wales are expected to rise from $1355 to $1381 and
the retail vacancy stood at 4.10%. this is lower than the full occupancy rate. If the population of
sydney grows further and the demand for retail commercial space increases, the prices of the
commercial market are expected to be inflated even further. New South Wales experienced a
population growth of 1.61% in 2016-2017 and there is a good chance that Sydney might benefit
to a great extent from this population growth. (Colliers International, 2017) In a siutation where
such rapid growth is expected, Commercial Property Managers must seek to have shorter leases
or seek to have leases where there is a default increase in rent by 4% at the end of the year.
While it is expected that the yields on the retail spaces in Australia to compress, the volume of
exchanges is expected to remain, making the retail space a viable solution. (Facility
Management, 2017)
In 2017, the national retail sales had grown by 40% as compared to the pre Global Financial
Levels. This could have been a result of the easy availability of credit owing to the low interest
rate policy that the Reserve Bank of Australia has maintained since the Global Financial Crisis.
A large part of that spending has been on relatively discretionary items like food, apparel and
hospitality sectors. (Colliers International, 2017)
Among the mix of the rental spaces, the contribution of Food and Beverage Industry and
entertainment is increasing. This trend is maintained in the regional sub centers. Hence, it would
make sense for sub centers to seek out Food and Beverage companies and increase their
contribution in the rent mix.
4 Castle Towers
The Castle Towers are located in the Castile Hill Property in Sydney. The sub regional property
has approximately 114,000 square meters (GLA Retail) of floor space. Owned by Queensland
Investment Corporation, it has a total available 5300 parking spaces. The Castle Towers is a
major retail hub with access to plenty of residential areas. Located in the booming area of North