Commercial Property Analysis of Sydney CBD Economic Research Assessment

Commercial Property Analysis of Sydney CBD Economic Research Assessment Student Name: Student ID: Subject Name: Subject ID: Date Due: Professor Name: Executive Summary Property economic analysis can allow understanding related to the nature of a location with a more deep prospect. The location includes some of the largest Australian companies, it also includes some large Asia-Pacific headquarters for many international companies (propertyupdate.com.au, Sydney CBD Property Analysis, Retrieved on 15th November 2017 ).

Commercial Property Analysis of Sydney
CBD
Economic Research Assessment
Student Name: Student ID:
Subject Name: Subject ID:
Date Due: Professor Name:
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Executive Summary
Property economic analysis can allow understanding related to the nature of a location with a
more deep prospect. In this property economics analysis, Sydney CBD has been taken into
consideration which is commercial based locality. Commercial spaces are largely the primary
structural and property component at the location with minimum numbers of residential
properties. Being located at Sydney along with several other suburbs, it is able to house several
of well-known and famous companies of the world. The scope of following analysis depicts
trends relative to economic factors and then charting location on Property Clock such that
investors can make use of the same and then take appropriate decisions.
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Table of Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................4
Non-residential Segment : Silverwater............................................................................................4
Happenings in past, present and future predictions.........................................................................7
Economic Climate.........................................................................................................................10
Analysis according to Property Clock...........................................................................................14
Conclusion.....................................................................................................................................16
Reference Lists..............................................................................................................................17
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1.0 Introduction
Property market has a dominant share in the market throughout the world. Australia’s property
market has been often accused of being one of the most expensive markets in the entire world.
Amongst all locations Sydney Central Business District (Sydney CBD) is well-known as the City
and is the commercial center of Sydney, Australia. It is located to south of Sydney and is about 3
kilometers from Sydney Cove, which marks the first European settlement in Sydney region. It
has a stable population and consists of several other suburbs. It is primary economic and
financial center and is recognised as an economic hub in Asia-Pacific region. It employs almost
13% of total workforce, hence is of utmost commercial importance. It produces major good and
services that contributes significantly to the economy and includes some of the most significant
structures and buildings. The scope of the current analysis deals with commercial segment
property analysis of Sydney CBD along with pertinent economic analysis for the area.
2.0 Commercial Segment : Sydney CBD
In entire of Sydney, CBD includes a dense population of buildings with several skyscrapers with
parks of interests as Royal Botanic Gardens, Hyde Park, The Domain and Wynyard Park.
Sydney CBD falls under City of Sydney’s local government area. Though New South Wales
state government exerts control over some aspects of CBD, but majority of decisions in the
location are taken by the City of Sydney Council. The location includes some of the largest
Australian companies, it also includes some large Asia-Pacific headquarters for many
international companies (propertyupdate.com.au, Sydney CBD Property Analysis, Retrieved on
15th November 2017 ). It houses some of the well-known financial services companies as
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Commonwealth Bank of Australia, Citibank, Westpac, Deutsche Bank, AMP Limited,
Macquarie Bank, Insurance Australia Group, AMP Limited, AON, HSBC, Marsh, AXA, ABN
Amro, Allianz, Bloomsbury and many more.
The Australian housing property market have been suffering since quite some time, however
commercial properties are constantly maintaining their steady rates. Due to the mere location of
Sydney CBD it gains tremendous amounts of importance and opportunities, its prices are quite
stable in the region. The area primarily caters to commercial spaces which are in high demand
and low vacancy in properties. Rental rates are constantly rising in the area in commercial
spaces. The locality contains a mixture of new and old architecture. Old architecture in the city
dates back to a period of colony days which consists of Victorian architecture from Gold rush
period, as Sydney Town Hall and Queen Victoria Building. Whereas newer architectural forms
comprises of high rises and sky scrapers on Sydney city streets, as Culwulla Chambers. The
locality comprises mostly of commercial spaces as against residential spaces, which has been
rising constantly. Analysis of macro factors in the region can enable detailed information
regarding various happenings in past, present and future it is integral to have understanding
relative to macro environment existing in the country and the Council.
Political factors that lay emphasis on Sydney CBD comprise of consists of Federal government
as well as Council of Sydney. The Sydney City’s council makes major decision relative to the
area regarding its development and growth related factors. All major decisions in the area
concerning its growth and development are also taken into being by the Federal Government as
the location is of high importance and significance being central headquarters of many
companies. Bureaucrats are making best endeavors to develop and attract major investors in the
city and then plan its developments accordingly.
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Economically the location is dependent on Sydney City Council for its various developments and
facilitation. The Council has powers to limit development and growth or facilitate the same. The
location has immense capabilities to grow and generate funds from the multifarious service
industry that are based there. Economic prosperity of the place has been since a long-time
dependent on the commercial properties and their developments. Real estate business especially
in commercial properties lays immense importance in the area as it is significant generator of
funds in the locality.
Socially the location caters to tremendous earning and income opportunities. The location has
catered to service jobs for a large number of companies. There is tremendous generation of
employment in the region from service sector jobs. The location supports significant
employment opportunities thus creating prospects for employment. It connectivity by means of
roadways, railways have enabled companies to set up their offices at this location. It attracts
significant number of population from nearby regions. It has some parks which are able to attract
tourists and it also has schools and residential facilities nearby.
Technologically the location is extremely well developed and highly advanced. All major
technological developments in the region have been due to the setting up of offices and
commercial spaces in the region. The region boasts of its high-end connectivity and ability to
cater to growth in telecommunication and other information sector in a significant way. Due to
the technological advancement in the locality there are many international firms that set up their
operations there.
Legally the location has major laws, regulations and norms that are impended in the region. All
laws related to labor or environmental are applied and confirmed in the region. All matters of
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jurisdictions are dealt in the region in Sydney city, where Council reserves right for making any
decisions pertaining to relevant situations.
The location is highly in demand across global facilities hence property pickers flocks to the
region to pick their properties and establish their businesses there. Therefore, the region can
entail high inputs and then significant outputs in regards to the same. All these factors are
reflected high prices of properties in the region and impacted growth related to properties there.
3.0 Happenings in past, present and future predictions
Commercial hub of Sydney CBD had been increasing in size since attaining of independence. In
the past it had a sizable population and a fascinating city to explore. With recent trends in
globalisation, advancement in technology and rising importance of Australian businesses
importance of area of Sydney CBD has grown further. The area had been successful post gaining
attention of large number of international as well as national investors visualizing opportunities.
Such investors and property developers have tremendously invested in the area leading to its
growth. With setting up of multi-storied buildings, architecture and skyscrapers as MLC Centre,
Governor Philip Tower and World Tower has enabled the locality to gain much importance
related to the locality.
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Figure 1: CBD Vacancy Rates
Source: Property Council of Australia
Sydney CBD has been rated world’s second most expensive city compared to incomes with
prices being 12.2 times of earning. Various researchers are pointing at record high prices in
Australia’s biggest cities. In past there has been steady property prices with depicting trends of
availability of commercial spaces.
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Figure 2: Market Rates
Source: (propertyupdate.com.au, Market Rates, Retrieved on 15th November 2017)
The above analysis of property markets in Australia depicts that Sydney CBD has been at the
peak of markets. The area has had steady demand and supply of property due to its commercial
nature of property. Ready connectivity to roadways and commercial connection that is offered by
the locality hence it is able to maintain its price range along with supply of properties. Amongst
all other locations spread across Sydney, this location has become hub catering to large number
of business houses. This locality boasts of its cleanliness, facilities and other factors that have
attracted commercial property dealers from Asia as well as across other locations. These
determining factors have impended high demands and therefore high amounts of property prices
fluctuations in the region (Steinfeld, 2011). Though government along with property dealers
have established portals to gain steady inputs into the locational factors. Underlying economics is
well suited to the place that allows several businesses set up operations and operate in the
locality. With immense influx of immigrants in the region, commercial offices have been able to
gain steady employees for their various tasks as well. Such support of demographic, locational
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and other factors have led to constant development in the place leading to commercial companies
seeking properties to set up offices in the locality. Other factors that have provided impetus to
development of properties at the location consists of governmental policies, prevailing tax rates,
availability of a wide range of facilities and so on.
4.0 Economic Climate
Economic climate is bound to largely affect and impact property market. As economic market in
Australia is on a constant downturn, it has deeply affected various market systems within the
country (Hatzvi, 2008). It becomes essential to determine and assess underlying economic
structure relative to a location or place such that the location can cater to needs and demands of
the locality. All factors that provides impetus to economic factors has to be determined and
assessed to understand the impacts they cause on a particular locality. In cases of commercial
spaces it becomes essential to determine such factors such that they are able to cater to large
number of additional influences which can yield positive effects on the location. Sydney CBD is
connected well to the main Sydney City and has features or facilities of leading commercial
spaces (Wilkinson, 2013). All determinants of Sydney are such that they can create a positive
impact and role on the economy. Sydney CBD being a primary business district and business
center has also been deeply affected by such downturns. Therefore, economic analysis of various
factors affecting the location has been deeply analysed as interest rates, GDP, employment,
world-events, government policy and so on. All economic parameters reflects that Sydney CBD
has been affected from such occurrences in world events and also around Australia.
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Fluctuations in interest rate have affected entire country’s property markets. With such
fluctuations in rates of interests, investors have been looking for avenues to invest and divert
their funds into (Mulley, 2016). With peaking rates of properties, Sydney CBD has seen
considerable rise in its properties investments in commercial as well as residential nature. Such
investments into properties have enhanced prices of properties further. Rents and lease rates have
increased considerably in the past and at present it is peaking to high levels. Annual increase in
interests and rents are considerably higher as compared to peak rates that they were used to.
Figure 3: Increase in Rent
Source: (abc.net.au, Retrieved on 15th November 2017)
GDP in Australia had been stagnating for quite some time with limited increase in contribution
from agricultural and service sectors. Sydney CBD has offices and contributes to major service
sectors especially financial ones. The location provides immense contribution into Australia’s
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GDP as it has major offices from service sectors. With rise in rent, leases and property prices,
this localities contribution into service sectors has also been stagnating for quite some time.
Employment has become the greatest deterrent within the Australian economy with rising rates
of unemployment. Unemployment has preceded in the economy with various automotive and
other jobs getting outsourced to other locations (McNeill, Office buildings and the signature
architect: Piano and Foster in Sydney, 2007). Employment in Sydney CBD has been diminishing
at a rapid rate with service sector jobs also getting relocated to other low costs destinations.
Therefore, prices of properties in Sydney CBD needs to go down such that they can generate
much more revenues and attract large amounts of investments in the region. Soaring property
prices have done more harm compared to good for various service sector companies. Various
companies have been forced to withdraw from the location and set up firms in suburbs of other
locations that have considerably lower rates as compared to Sydney CBD. Some companies
have already shifted their location to Singapore and other Asian countries.
Consumer confidence determines the level of satisfaction a consumer has regarding payment of
properties. As in this case there is lowered consumer satisfaction that has led to supply
overtaking demands (McNeill, Fine grain, global city: Jan Gehl, public space and commercial
culture in central Sydney, 2011). As prices at the locality are at its peak, there is more supply of
properties in regards to rents, leases and purchases to be made. Prices are higher as supply has
overtaken demand within the property space and gaps are broadening. Consumer confidence in
the region has deepened in the recent past with heightening of rates and rents related to
properties.
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Government policy has been supportive of development related to properties in the area (CBD,
2014). All policies related to property markets have received tremendous bureaucratic support
such that they are able to develop and establish properties at appropriate rates. Governmental
regulations in regards to building norms and safety requirements have been developed in a
manner such that they can sponsor development of commercial properties (Lee, 2009).
Commercial property mortgage rates has been considerably lower in the past and present as well.
However, they are expected to dip to create a surge in property demands in the region.
World-events are those, which affect economic and other macro factors within a region or
locality. At Sydney CBD due to its importance as a financial center there have immense impact
that is created from varied world events. As in regards to financial crisis at the US, there have
been impacts and shutting down of several firms or companies in Sydney CBD that had been
withdrawn or closed (McKibbin, 2011). Further terrorism activities have also deterred activities
at the location leading to fluctuation of property rates.
Inter-relationships exists amongst various variables at macro levels that affect Sydney CBD
commercial property spaces. Major offices that are for rent, lease or purchases in the locality
suffers from challenges that are impacted by their home offices. As HSBC is impacted from
property bubble busts in UK and at other locations. Similarly terrorism bound or other major
global activities are bound to impact property ratings or other factors related to the locations
(Douglas, 2009).
Analysis of all determining factors prove that existing rates at Sydney CBD are higher as
compared to past rates. Various news authorities, researchers and property market dealers
estimate that a bubble exists in the market and is bound to busts in case of absence of artificial
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demands to sustain the same. Such are the property price levels existing at the location (Newell,
2008). Sydney CBD with its massive commercial spaces and infrastructure are connected and
interconnected to various world events as well as happenings around the globe due to its rents
and leases being availed mostly by international companies. All major international companies
have their hubs suitably located at Sydney CBD which makes it a major important location with
its various connectivity and access to wide range of factors.
5.0 Analysis according to Property Clock
Property Clock is an analytical tool that allows to analyse property market prices and places
them according to certain stages in a representation (Karantonis, 2007). It goes around in a
cyclical manner and determines prices to sell or purchase properties on basis of their location on
the clock. A property or a location is recognised according to its stages in boom or bust market
periods where it makes preparation for next stages. In case a location is at boom then it is
expected that demand is exceeding supply and prices in the market are at its peaks. In cases there
is an oversupply of property in the market then supply increases demand then prices are expected
to bottom out (Lee, 2009). Post such period a recovery starts where rental returns are expected to
rise further. In analysis of Sydney CBD for the past, it reflects that the locality offers rising
markets. Current trends related to the area reflects that its prices are at its peak. Various
researchers and authors are evaluating that the property markets be it housing or commercial
have reached their peak levels, it has been estimated that prices of the property going forward is
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expected to dip in the future. Rents and leases are also expected to come down but at current
situations they are soaring at their best possible rates (Pinnegar, 2010).
Figure 4: Property Clock Sydney CBD
Source: Author
The above depiction from the Property clock reflects that Sydney CBD from rising property
markets where there was low availability of commercial spaces it has been able to reach at its
peak levels of investments. At present the locality with large developments of commercial
projects, sky scrapers and other projects have been able to provide adequate supply of rents,
leases and commercial properties that are available for purchases (Boon Foo, 2007). The locality
has been able to house some of the world leading brand names and commercial names with
support from its architecture and supporting workforce availability. However, trends depicts that
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the commercial spaces have now reached a position where there are various vacant spaces with
limited number of buyers, investors and other participants in the market. Hence, this will force
prices to come down in the locality till it can be comfortably adjust across to its supply rates. The
Property Clock hence depicts that it is an ideal time to sell commercial spaces or rent or lease
them in case of availability (Davidson, 202). There should be no waiting period for the investors
and lessors of such properties. Therefore, there needs to be a waiting period for buyers and
companies eager to take on leases or rent or purchase spaces for the purpose of their businesses.
Such depictions should be accommodated for the propose of property investments.
6.0 Conclusion
Analysing trends of property markets it can be seen that Australian property market has been
able to reach a stage of stagnancy and peak of its market prices. Studies by global investment
bank UBS reveals that prices of commercial property markets in Australia are at 7% higher than
it was expected to be. With tanking of interests rates at various global locations investors are
eyeing property markets to bank their investments and get steady returns from them. Sydney
CBD is considered to be one of the best location to invest in commercial spaces and get steady
returns. However, with steep rise in prices of property spaces, it is expected that property prices,
rents and leases are expected to drop in the future as well. therefore, prior to investing or taking
steps in a property in the area, individuals needs to analyse significant property economics
related to the area and develop a view in regards to the same.
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Reference Lists
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McKibbin, M. (2011). The influence of the built environment on mode choice–evidence from the
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McNeill, D. (2011). Fine grain, global city: Jan Gehl, public space and commercial culture in
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Mulley, C. &. (2016). When and how much does new transport infrastructure add to property
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Newell, G. (2008). The strategic significance of environmental sustainability by Australian-listed
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Pinnegar, S. F. (2010). Suburban reinvestment through ‘knockdown rebuild’in Sydney. In
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https://propertyupdate.com.au/property-investment-sydney/.
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Wilkinson, S. J. (2013). Options for green roof retrofit and urban food production in the Sydney
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