Australian Real Estate Market Analysis

This assignment delves into the complexities of the Australian real estate market during 2016-2017. It examines various contributing factors like consumer confidence, interest rates, and economic growth, alongside expert opinions and market predictions. The analysis aims to provide a comprehensive understanding of the market's performance during this period, highlighting key trends and potential future developments.

Property Economics 1
PROPERTY ECONOMICS
Students Name
Course
Professor’s name
University
(City)State
Date

Property Economics 2
Abstract
The city of Sydney has a robust economic growth and its one of the best performing cities in
Australia. Today, the city boasts one of the most vibrant commercial property markets in the
country. For this reason, this report shall focus on the non-residential segment of the property
market with deep focus on the real property market within the Sydney CBD locality. Over the
past few years, the Sydney CBD property market has been identified as one of the fastest
growing in the country. Mainly, this is due to the fact that its retail sector has one of the busiest
asset sales and leasing activities. Overall, the demand for retail property in the region is high as
more businesses seek retail space for their business. Usually, the retail properties are let under
various terms among them renting, leasing, and total buyouts from the owners.

Property Economics 3
Contents
Introduction......................................................................................................................................4
Drivers of the Sydney CBD Retail Property Market.......................................................................5
Government Regulation...............................................................................................................5
Consumer Confidence Levels......................................................................................................7
Interest rates.................................................................................................................................9
Employment Patterns.................................................................................................................10
Gross Domestic Product.............................................................................................................13
The Trend in the Retail Property Market.......................................................................................14
The recent past...........................................................................................................................14
Current.......................................................................................................................................14
The future...................................................................................................................................15
Position on the Property Clock......................................................................................................15
The Recent Past..........................................................................................................................15
Current.......................................................................................................................................15
Future.........................................................................................................................................16
Conclusion.....................................................................................................................................16
Reference List................................................................................................................................17

Property Economics 4
Property Economics
Introduction
For a long time now, the Australian property market has been experiencing sustainable
growth. As a result, today, Sydney is considered to be one of the cities with the most vibrant
property markets. The city is characterized by various features that make its property market to
be highly lucrative and attractive for both international and local buyers. Fundamentally, this
occurrence is as a result of the city’s very stable political climate as well as its stable, resilient
and growing economy. For these reasons, purchasing property from the city’s property market is
a lucrative idea as it leads to substantial capital gains over the long term period. It should be
noted that the Sydney property market has various segments among them residential real estate
and non-residential or commercial real estate. One major segment of the commercial real estate
is the retail property market.
In a nutshell, the retail property market in the Sydney central business district
encompasses commercial properties that range from small neighborhood shopping centers such
as small grocery stores, pharmacies, clothing stores and restaurants (Realty Mogul, n.d.). In
addition, this property market also includes large superregional malls and business centers that a
wide range of services (Realty Mogul, n.d.). What is more, this category also includes
community shopping centers, specialty or fashion malls, outlet malls and power centers with big
anchor stores (Realty Mogul, n.d.). Today, the city is characterized by the existence of a
combination of these retail properties, situated at different locations throughout the region.

Property Economics 5
Drivers of the Sydney CBD Retail Property Market
To a large extent, the existence, location and demand of retail properties in the region are
influenced by the stable nature of the state’s economy as well as indicators such as consumer
confidence level, buying patterns, and local household income patterns. Other major drivers
include the current economic climate, government policy, interest rates, employment patterns,
GDP, and world events. It is noteworthy that a combination of these drivers and indicators has a
significant influence on the retail property market of this region.
Government Regulation
To a large extent, government regulation acts as a major determinant in the retail property
market in the city. The local and federal government influences the retail property market
through its various legislations and policies on construction, leasing or purchase of retail
property. It also influences the industry through approval and restrictions of retail ad commercial
buildings, which then influences the supply of non-residential buildings in the property market.
Tax policies
One major means through which the government influences the market is through its tax
systems and regimes. Notably, it has set various tax requirements on retail property in the state.
For instance, retailers who acquire their premises of operations through renting have the rent as
tax deductable (Australian Taxation Office, 2015). On the other hand, those who acquire retail
property through leasing (as owners) are charged an income tax return equal to the full amount of
the rent earned from the premises (Australian Government, 2016). In the same way, commercial
buildings used in the operation of a business are subject to capital gains tax, payable to the city

Property Economics 6
or federal government (Australian Taxation Office, 2015). In this regard, the various tax policies
have a major influence on the leasing, renting and purchasing of business premises within the
Sydney CBD region.
Building approvals
It is imperative to point out that the city and federal government have the power to
approve or disapprove the construction of premises within the CBD. In turn, this significantly
affects the supply of property available for leasing, renting or buying for the purpose of retail. In
the past few years, the building approvals for non-residential sector have been varying as shown
in the table below.
City of Sydney
Financial year Residential $('000) Non-residential $('000)
Total $
('000)
2016-17 Apr 1,899,301 3,192,831 5,092,132
2015-16 2,471,342 2,339,186 4,810,527
2014-15 1,236,505 1,423,043 2,659,548
2013-14 885,563 4,697,216 5,582,780
2012-13 1,141,540 1,346,093 2,487,633
Source: (Australian Bureau of Statistics, 2017).
From the table above, one can note that the number of building approvals have been
rising significantly since 2014-2015. More precisely, the value of non-residential building

Property Economics 7
approvals during 2014-15 was estimated at 1,423,043,000 (ABS, 2017). In the year that
followed, the value was estimated at 2,339,186,000 (ABS, 2017). As at April this year, the value
of the approvals was estimated at 3,192,831,000 (ABS, 2017). Indeed, the trend indicates that
there have been significant increases in the number of non-residential buildings in the country.
Consequently, it applies that the supply of retail properties in the property market has increased
gradually over the recent past.
Consumer Confidence Levels
The consumer confidence level also plays a big part in the Sydney CBD retail property
market. Mainly, this is because consumers are the key drivers of any business unit. Thus, their
confidence on the market determines whether or not the market is successful. To a large extent,
the consumer confidence level in the city has been growing over the past few years. In turn, this
has facilitated a consistent growth in the retail real estate of this region (Meyer, 2016).
According to the Australian Bureau of Statistics, the consumer confidence level on the property
market is expected to grow in the next few years. Last year, the consumer confidence level rose
by 2.5 percent from 2015 (Meyer, 2016). This year, the indicator is estimated to have risen to 3.6
percent in October (Trading Economics). Notably, this is the strongest confidence level since the
beginning of the year. In addition, the business confidence in the country has been estimated to
be rising over time.

Property Economics 8
Source: (Trading Economics, 2017).
Source: (Trading Economics, 2017).
It is important to point out that there is a positive relationship between the level of
consumer confidence, business confidence and the retail property market in the city.
Characteristically, a high consumer and business confidence in the market translates to high
volumes of business in the city. In turn, this brings about an increase in the demand for goods
and services by households and businesses in the region. Consequently, this promotes the need
for business expansion and, thus results in a rise in the demand of retail property within the city.
It is, therefore, worth noting that the significantly high consumer and business confidence has
positively influenced the city’s retail real estate market.
Interest rates
Typically, the interest rate level plays a major role within any given market. In the same
way, the prevailing interest rate regime in the country greatly influences the level of business

Property Economics 9
operations within the Sydney CBD retail property market. Ordinarily, property values fluctuate
with changes in interest rates in the country. As a whole, the Reserve Bank of Australia has set
the interest rate level of the country low for some time now (Trading Economics, 2017). In its
October meeting, the monetary authority decided to leave the cash rate constant at 1.5 percent
(Trading Economics, 2017). In turn, this has made the cost of credit cheaper, allowing both
households and individuals to have easy access to loans.
Graph showing the prevailing interest rate regime
Source: (Trading Economics, 2017).
Generally, when interest rates are low, it encourages prospective retail property owners to
enter the market. Mainly, this is due to the affordable credit facilities (Glynn, 2015). Therefore,
those entrepreneurs who were previously unable to obtain loans can now have access to the
same. What is more, those businesses that had limited access to the same can seek additional
loans to expand their premises. Now, more firms have firms have funds to buy, lease or rent
property in the retail real estate. As a result, therefore, one can argue that the low interest rates in

Property Economics 10
the region has greatly boosted the demand for retail properties in the Sydney CBD as more firms
can easily access loans, without a heavy burden of repayment.
It should also be noted that the low interest has pushed the demand for commercial
properties upwards, thereby triggering the property value of these premises to rise. According to
economic theory, a rise in demand for a given service or product brings about a subsequent
increase in the price of the same (Glynn, 2015). Thus, since more businesses have money to
demand for retail property, which is in limited supply, its price is pushed upwards (Glynn, 2015).
Therefore, one notes that the current low interest regime has greatly contributed to the increase in
value of retail real estate property in the country.
Employment Patterns
It is also imperative to point out that the level of employment is another major driver of
the retail property market in the Sydney CBD region. More specifically, the rate of employment
within a given region determines the purchasing power of households and individuals within the
area. For this reason, when the level of employment is high, households have more income to
demand for retail goods and services. In contrast, when the rate of unemployment is high,
households have limited income to demand for goods and services from retail firms. Hence,
retail businesses have a limited customer base, which then forces them to reduce the demand for
retail property in the region.
Unemployment rate in Sydney
In economics, the rate of unemployment acts as a major indicator of the economic
success of any given region. Indeed, the rate of joblessness indicates the proportion of the

Property Economics 11
resident labour force that is willing and able to work, but cannot find employment. Therefore, a
low rate of unemployment suggests that an area is affluent with a high rate of access to jobs.
Contrariwise, a high rate implies that a region is experiencing a declining economy characterized
by the closure of key businesses, industries, and retail premises to the disadvantage of the local
populace.
Source: (idcommunity.com, 2017).
As a whole, the rate of unemployment in the city of Sydney has been relatively high. In
the March quarter, the rate of unemployment was estimated at 3.90 percent (“City of Sydney”,
2017).. Notably, this is a 0.14 percent drop from the December quarter’s 4.04 percent (“City of
Sydney”, 2017). In Last year’s September quarter, the rate of unemployment was estimated at
3.82 percent, a significant drop from June quarter’s 4.35 percent and March’s quarter 4.36
percent (“City of Sydney”, 2017). Thus, it can be noted that over the past year, the rate of
unemployment in the country has been reducing slowly but gradually, thereby giving the hope

Property Economics 12
that the rate of employment has also been rising gradually. In effect, this implies that more
households now have access to wages and salaries. Consequently, it follows that households can
demand for more retail goods and service, which then boosts the retail industry. A boost for the
retail industry implies a higher demand for the retail properties.
Local employment
Just like the rate of unemployment, the rate of local employment is an important indicator
that estimates the number of jobs within the city of Sydney. By and large, it indicates the size of
the local economy, and its ability to support the retail property market. It should be noted that the
number of local jobs within the Sydney CBD has been rising significantly over the past few
years. For instance, in 2006, the number of local jobs was estimated at 459,405 (“City of
Sydney”, 2017). In 2011, the figure rose to 522,055. Further, the number of jobs increased to
580,691 in 2015 (“City of Sydney”, 2017). As at last year, the statistic was estimated at 623,760
(“City of Sydney”, 2017). Indeed, these figure indeed a consistent increase in the level of
employment in the city. In turn, it implies that more households have more funds, which then, as
explained earlier results to an increase in the demand for retail property within the region.
Employed residents
Similar to the other two indicators, the number of employed residents is an important
index of determining the economic success of a region. Typically, the greater the number of
employed residents, the higher the economic prosperity of the city. Noteworthy, the number of
employed residents within the city’s CBD has been rising gradually over the past few years
(“City of Sydney”, 2017). More specifically, in 2006, employed residents were estimated at

Property Economics 13
105,216. Five years later, in 2011, the figure rose to 120,713 (“City of Sydney”, 2017). Another
five years saw an increase in the number of employed individuals rise to 132,196 (“City of
Sydney”, 2017). Last year, this value was recorded 135,905 residents (“City of Sydney”, 2017).
Indeed, it can be noted that as more individuals within the city’s CBD are gainfully employed,
the retail sector grows. Eventually, it translates to an increase in the demand for commercial
assets in the retail property market.
Gross Domestic Product
The Gross Domestic Product is also a major driver and indicator of the economic status
of any given region. Noteworthy, the city of Sydney has one of the most robust and fast growing
economies. Today, the city boasts as one with the fastest rates of economic growth in the
country. In 2014-15, the city accounted for about 30 percent of Australia’s total GDP (Wade,
2016). In the recent past, the region has exhibited a consistent rise in its GDP, indicating a
vibrancy and economic success. Notably, the relatively high level of GDP has brought about
economic growth in the city’s CBD, thereby facilitating an increase in the degree of business
undertaken in the region. Consequently, this has led to an increase in retail activity, thereby
opening up demand for retail spaces in the CBD. More precisely, both small and big retail
companies seek to start or expand their outlets, thereby increasing the demand for retail property
in the region. In turn, the increasing demand in the non-residential property market has brought
about a rise in value of such properties in the country.
The Trend in the Retail Property Market

Property Economics 14
The recent past
It is worth noting that the commercial and non-residential real estate sector has been in
existence in the city’s CBD for decades. Over the years, the sector has grown gradually to what it
is today. In the past, the industry was restricted and growth was minimal due to high rates of
interest on loans for developing non-residential buildings within the country. Thus, its supply
was also limited. In the same way, businesses could not access affordable loans from banks;
hence the demand for expensive retail spaces in the property market was also limited. What is
more, building approvals for the same was minimal.
Current
Currently, the retail property market is picking up and growing gradually. Mainly, one
can attribute this to the fact that the prevailing low interest rates in the country has made bank
loans easily accessible to both developers and both potential and existing retail business owners.
As such, developers can now access cheap loans to construct retail buildings, thereby increasing
the supply. Besides, the government has since increase its approval rates of non-residential
buildings in the region. On the other hand, retailers can now increase their demand for these
buildings in the country as they too can access cheap and affordable loans. In turn, this has
facilitated a considerable growth of the sector.
The future
It follows that the future of this sector is bright. More specifically, it is anticipated that
the Reserve Bank of Australia will continue to maintain the cash rate constant and low over a
long period of time. In turn, this is expected to boost and stimulate economic growth in the city’s
CBD. Indeed, a sustained period of economic growth and prosperity will stimulate and increase

Property Economics 15
the level of economic activity. In turn, this means that existing businesses will seek to expand
their operations by opening up new outlets. In the same way, new businesses will be opened.
Subsequently, the demand for retail buildings will rise and thus, the retail property market will
experience tremendous growth.
Position on the Property Clock
The Recent Past
The non-residential retail property market in the city of Sydney has been performing
relatively well on the property clock. In the recent past, one may argue that the CBD has been
operating mainly at the 11th hour of the property clock (Muddle, 2013). Mainly, this is because
the market was experiencing a prolonged period of upswings in the market. It was characterized
by a recovery period, with the property market approaching its peak (Matusik, 2014). What is
more, the prices for property in the market were also rising gradually.
Current
One may argue that the retail property market is currently at its peak. More specifically,
the market is operating at the midnight hour on the property clock. Primarily, this is the case
because the market is seen to have reached its peak (Harley, 2016). The prices of retail buildings
within the CBD are significantly high. In addition, the demand for such properties is gradually
outstripping the current supply (“Property Clock”, 2017). Thus, the value of property in the
market is gradually rising, and is expected to continue up to the end of the year.

Property Economics 16
Future
It is anticipated that in the near future the property market will be operating at 1 o’clock
in the property clock. As such, at this time, it is anticipated that the market will be starting to
decline. The demand for houses will also go down significantly (“Property Clock”, 2017). The
rental returns for property owners will also decline substantially. Property values will also
dwindle gradually within the region.
Conclusion
All in all, all factors considered, the Sydney CBD retail property market is operating at
healthy levels. Currently, this non-residential property market exhibits prospects for growth in
the near future ceteris paribus. However, fluctuations in the economic conditions of the city or
financial status of its economy may significantly affect the growth of the property market.
Regardless, the sector is generally healthy.
Reference List

Property Economics 17
Australia Tax Office. Buying commercial premises. [Online] Australia Tax Office. Available at:
https://www.ato.gov.au/General/property/property-used-in-running-a-business/buying-
commercial-premises/ [Accessed 13 October 2017].
Australia Tax Office. Interest and penalties. [Online] Australia Tax Office. Available at:
https://www.ato.gov.au/General/Interest-and-penalties/ [Accessed 13 October 2017].
Australian Bureau of Statistics. (2017 Building Approvals. [Online] Australian Bureau of
Statistics. Available at:
http://www.abs.gov.au/ausstats/abs@.nsf/dossbytitle/6647286D5517E834CA2570F10015ED94
[Accessed 13 October 2017].
Australian Bureau of Statistics. (2017). Building Approvals by Greater Capital Cities Statistical
Area (GCCSA) and above [Online] Australian Bureau of Statistics. Available at:
http://stat.data.abs.gov.au/Index.aspx?DataSetCode=BA_GCCSA [Accessed 13 October 2017].
City of Sydney (2017). Business and economy. [Online] City of Sydney. Available at:
http://www.cityofsydney.nsw.gov.au/vision/towards-2030/business-and-economy [Accessed 13
October 2017].
City of Sydney Building approvals. (2017). [Online] idcommunity.com. Available at:
http://economy.id.com.au/sydney/value-of-building-approvals [Accessed 13 October 2017].
City of Sydney Local employment. (2017). [Online] idcommunity.com. Available at:
http://economy.id.com.au/sydney/local-jobs [Accessed 13 October 2017].

Property Economics 18
City of Sydney Unemployment. (2017). [Online] idcommunity.com. Available at:
http://economy.id.com.au/sydney/unemployment [Accessed 13 October 2017].
Finder. (2017). What is the property clock and how does it work? [Online] finder.com. Available
at: https://www.finder.com.au/what-is-the-property-clock-and-how-does-it-work [Accessed 13
October 2017].
Glynn, J. (2015). Australia Cuts Interest Rates to Record Low. [Online] The Wall Street Journal.
Available at: https://www.wsj.com/articles/australia-cuts-interest-rates-1422935313 [Accessed
13 October 2017].
Harley, R. (2016). It's midnight for Sydney and Melbourne on the property clock [Online]
Financial Review. Available at: http://www.afr.com/real-estate/its-midnight-for-sydney-and-
melbourne-on-the-property-clock-20151108-gktym6 [Accessed 13 October 2017].
iPoperty. (2017). 2016 – 2017 Australian real estate market predictions. [Online] iPoperty.
Available at: http://www.iproperty.com.au/news/2016/10/18/2016-2017-australian-real-estate-
market-predictions/ [Accessed 13 October 2017].
Matusik, M. (2014). Where are we on the property clock?. [Online] Michael Yardley’s Property
Update. Available at: https://propertyupdate.com.au/property-clock/ [Accessed 13 October 2017].
Meyer, J. (2016). Consumer confidence jumps to highest levels in 2½ years. [Online] Sydney
Morning Herald. Available at: http://www.smh.com.au/business/the-economy/consumer-
confidence-jumps-to-highest-levels-in-2-years-20160606-gpd4wy.html [Accessed 13 October
2017].

Property Economics 19
Muddle, G. (2013). How to navigate the property clock. [Online] Smart Property Investment.
Available at: https://www.smartpropertyinvestment.com.au/opinion/11415-how-to-navigate-the-
property-clock [Accessed 13 October 2017].
Realty Mogul. Commercial Real Estate property Types. [Online] Realty Mogul. Available at:
https://www.realtymogul.com/sites/default/files/eBook-Commercial_Property_Types.pdf
[Accessed 13 October 2017].
Trading economics. (2017). Australia Business Confidence. [Online] Trading economics.
Available at: https://tradingeconomics.com/australia/business-confidence# [Accessed 13 October
2017].
Trading economics. (2017). Australia Consumer Confidence. [Online] Trading economics.
Available at: https://tradingeconomics.com/australia/consumer-confidence [Accessed 13 October
2017].
Trading economics. (2017). Australia Interest Rate. [Online] Trading economics. Available at:
https://tradingeconomics.com/australia/interest-rate [Accessed 13 October 2017].
Wade, M. (2016). Booming Sydney drives the nation's growth. [Online] Sydney Morning Herald.
Available at: http://www.smh.com.au/nsw/booming-sydney-drives-the-nations-growth-
20160214-gmtmj7.html [Accessed 13 October 2017].
Welcome to the City of Sydney Economic Profile. (2017). [Online] idcommunity.com. Available
at: http://economy.id.com.au/sydney [Accessed 13 October 20