Implications for Commercial Property Managers due to Structural Change in Australian Economy

This document discusses the current and future implications for commercial property managers in Australia due to structural change in the economy. It explores the impact of the Global Financial Crisis on the property sector, including declining market rents, rising vacancy rates, and increasing outgoings. The document also provides preventative strategies for property managers to navigate these challenges.

Title 1
Current and future implications for commercial property managers due to structural change in
the Australian economy.
Name
Date
Course
Institution
Tutor

Title 2
Executive Summary:
As a Property professional, developer, investor or manager it is essential to hold adequate
knowledge of the ever-changing property cycles, across all markets. By examining and
gaining knowledge based upon previous errors made by past Governments, financial
companies and banks property enthusiasts are able to view the potential of property
worldwide. It is clear that the decline in the economic domain can directly affect property
markets, while growth within the economy can achieve benefits to property.
During the period of the second quarter of 2007 until early 2009, the Global Financial Crisis
(GFC) occurred shaping various markets around the world resulting in iconic events of
economic history. While a financial crisis primarily results in negative issues, society has
arguably learnt drastically with regard to ideas relating to investment, risk, finance, banks and
greed. A major factor that led to the GFC stemmed from sub-prime loans in America that
caused significant economic decline and were seen to have a significant effect on most major
countries worldwide. The Australian property sector was significantly affected during the
period of the GFC with direct regard to declining market rents, increasing outgoings and
rising vacancy rates. This is identified through the case study ‘18 Smith Street, Parramatta
NSW’ found within appendices to be a small insight into what is the larger scale of office
property. Australia’s office property sector can be broken down into three levels of scale;
Premium, A Grade and B grade.

Title 3
Table of Contents
Executive Summary:..................................................................................................................2
Introduction................................................................................................................................4
1.1History of the Global Financial Crisis:.............................................................................4
1.2 The causes of the GFC.....................................................................................................6
1.3 How the GFC unfolded....................................................................................................8
Literature review........................................................................................................................8
2.1The GFC’s impact on Australia:...........................................................................................8
2.2 The GFC and impact on Australian Bank Risk................................................................8
Discussion................................................................................................................................11
3.1 Sydney Office Property, Vacancy Rates:.......................................................................11
3.2 Sydney Office Properties, Market Rents:......................................................................14
3.3 Sydney Office Property outgoings levels.......................................................................16
3.4 Future forecast for Sydney Office Property...................................................................17
3.5 Preventative Strategies for commercial Property Managers:.........................................18
Conclusion...............................................................................................................................20
List of references......................................................................................................................22
Appendices:..............................................................................................................................25

Title 4
Introduction
It is important for commercial property investors, managers to hold sufficient knowledge on
the changing property cycles. They can only achieve this by assessing the errors made by
banks and past government to view the potential of property in the entire world. From
assessing these errors, it is clearly shown that any drop in the economic domain directly
affect property markets. The GFC that happened between 2007 and 2009 shaped many
markets in the world resulting in a major event in the economic history (Kindleberger and
Aliber 2011, p.35). The GFC results had the sharpest and largest drawback in different
economic activity throughout the world. Due to the negative effect of the GFC, various
governments particularly Australia learned many things with regard to ideas such as finance,
banks, greed and investment (Higgins 2010, p.48). Some of the areas that were immensely
affected in Australia include the drop in market rents, the rising vacancy rates and increased
outgoings. Misperception and mismanagement of the risks, higher interest levels and
stringent financial regulation were the major causes of the Global financial crisis. The drivers
of the GFC were all about human psychology on risk perceptions. As much as countries such
as the US, UK suffered, the government of Australia was not largely affected by the impacts
of the GFC. The Reserve Bank of Australia regulated this by increasing the interest rates.
Most of the banks in Australia suffered accordingly when the global share markets
experienced a fall in 2008.This paper seeks to analyze the ramifications of the past Global
Financial Crisis climate currently. The paper further provides the future forecast of the
economy as well as the relative vibrancy of commercial real estate with reference to
economic market and property cycles. Lastly, the paper will discuss how Australia has
managed to deal with the GFC solidly.

Title 5
1.1History of the Global Financial Crisis:
The current Global Financial Crisis (GFC) started in 1980s when economic
deregulation took place. It started when the governments decided to eradicate financial
system controls to provide a wide scope for competition to encourage efficiency and
innovation (Raymond and Fischer 2013, p.42). This led to affordable credit which eased
lending standards and the tighter lending margins prompting a rise in the rate of innovation.
The rising pace of innovation made it hard for lenders and regulators to gauge the asset
position as well as banking institution solvency.
Between 2008 and 2009, several mortgage lenders in the U.S failed and the Bank of
America took over to contain the crisis. This problem was not only experienced in America
but also surfaced in several superior European economies that had heavily invested in the US
financial sector. The GFC ended the stable growth and inflation that was being enjoyed by
several countries (Reinhart and Rogoff 2009, p.471). During this GFC period, the nominal
GDP rose dramatically in US, UK and Australia with 120, 150 and 156 per cent respectively.
Most of this growth happened as a result of heavy property investment that pushed prices up
and developing an asset bubble in the property market.
The GFC results have been the sharpest and largest drawback in different economic
activity throughout the world. Dramatic drop has been experienced in the patterns and
volumes of trade. Despite the complex assumptions underpinning the econometric modelling,
the acute extent of the crisis was not properly predicted. The Global Financial Crisis, also
known and referred to as the great depression 2.0 was the key influence in diminishing what
was a stable economic domain within the United States of America (Obstfeld and Rogoff
2009, p.23). However, Australia has also not been spared of these impacts of GFC that
affected property market sectors, investment as well as equity that lead various developments
and companies to succumb to economic stocks.

Title 6
Prior to the GFC, key economic indicators provided a sense of confidence and
strength in the American economy including a limited and controlled inflation rate, a steadily
growing GDP percentage, while at the same time being contrasted against low rates of
interest and unemployment. The world’s view on the economy as a whole was positive as it
was producing strong development to all markets including the property sector, resulting in a
stable rise for housing prices (Kindleberger and Aliber 2011, p.39). Due to the sense of
security and confidence felt by general households and property developers, borrowing sky
rocketed with individuals and businesses diving at the opportunity to borrow from lenders in
a growing environment to acquire new homes and development sites.
The surge in the amount applications for loans and mortgages was positively
answered by the banks during the period of economic stability without reasonable knowledge
or investigation into the ability for borrowers to repay these loans. Primarily due to the
unforeseen repercussions of the GFC and the poorly advice and loans provided by bank
workers who were seeking commission on their ability to secure borrowers. Cost of
regulation has since become an issue to the consumer because of government auditing and
investigation on poorly advised loans, and in turn increased the cost of securing a loan for
consumers as these costs were passed on by the banks through consumer fees for loan
application. This limited consumers’ ability to purchase property, resulting in the value of
property assets not growing as rapidly (Karas, Pyle and Schoors 2013, p.187).
With the value of housing and property falling after a significant increase in long term
loans to consumers who were unable to repay their debts, the economy began to suffer as a
result of these major issues. As a result, banks were involuntary required to reclaim
ownership of borrower’s homes in order to cover the cost of unpaid loans by selling
properties below market value in order to cut the total amount of loss.

Title 7
The utmost peak of the Global Financial Crisis was seen in the second quarter of
2008, after the declaration of bankruptcy by the global financial firm Lehman Brothers
Holdings occurred (International Monetary Fund Staff, 2011). Amongst significant financial
insecurity investors began withdrawing cash from major banks and trusted investment funds
worldwide in order to create security for themselves and avoid further loss only to inevitably
create a major issue concern over the liquidness of these major financial services.
1.2 The causes of the GFC
There were numerous causes of the financial crisis in Australia. Some of them were
timely while some of them were long-lasting. The main causes of the financial crisis were
the mismanagement and misperception of the risk, financial system regulation and interest
rates levels. Notably, the most fundamental driver of the crisis was the inherent cycle of
human psychology around the risk perceptions. Initially, people convinced themselves that
the good times were to go on forever and the perception of the risk could eventually diminish.
This did not happen as expected (Higgins 2010, p.43). As a result, the cycle turned and the
risk aversion increased beyond normal levels. The outcomes of emerging market bonds and
some of the US companies were at risk at the end of the spectrum which narrowed relative to
those other securities that were seen to be safe. The spreads have since broadened out
dramatically and investors have become risk-averse.

Title 8
Figure 1showing the spread of US government bonds that resulted to emergence of GFC
Secondly, the low level of interests was the second elements that coincided with the
perceptions of lower risk. This prompted policy interest rates in major economies to drop to
levels lower as compared with history.
Figure 2 showing the policy interest rates in the US, Euro area and Japan
Over this period, the outcomes of bonds in major economies dropped to lower levels. Various
studies indicate that strong investor demand contributed to the prolonged decrease in rates.
The affected investors were from government agencies and central banks in emerging and
industrialised economies that were accumulating foreign reserves. Another cause of the GFC
was inappropriate financial regulation in some countries. The shortcomings that have been
identified in this area include: ratings use provided by the private-sector rating agencies in
banks regulation, credit rating agencies regulation, and the requirement of capital on complex
financial products and remuneration arrangements structure and development of risk
incentives. As a result, numerous internationally active banks failed to perceive and properly
manage the risk involved in different financial markets and products.
1.3 How the GFC unfolded
The issue of GFC unfolded when the US house prices dropped drastically and a
number of borrowers were not able to repay their loans. The houses prices in the US fall as a
result of the rising supply of the newly built houses. As the prices began to fall, the borrowers

Title 9
failed to pay for their loans and their number increased. In the US, the loan repayment was
sensitive to house prices making the proportion of US households with large debts to
increase. Due to GFC, the financial system also experienced stress. Many investors and
lenders started to experience major losses because their houses had been repossessed after
failing to pay the loan balance. Investors were not willing to buy MBS products and working
tirelessly to sell their holdings. Failure to buy MBS by investors reduced the prices of MBS
which eventually declined the value of MBS.
Literature review
2.1The GFC’s impact on Australia:
The impact the Global Financial Crisis held on Australia when shown in comparison
to the greater worldwide developed countries affected by the GFC, provides the image that
Australia was able to brush majority of the negative factors that were associated with the
GFC. Despite the effects of the GFC in 2009, Australia would perform to see a high in GDP
at 1.6% that would then plateau and again begin to rise in the fourth quarter of 2009,
prompting the idea that Australia was working its way out of the GFC with positive results
(Santos 2016, p. 461).
2.2 The GFC and impact on Australian Bank Risk
Reviewing Australia’s structured financial system, it is astonishing that Australia was
to an extent, largely unaffected by the impacts that were emplaced after the Global Financial
Crisis. Australia and its bank appeared immune to the credit crunch. As most countries were
cutting local interest rates, the Reserve Bank of Australia increased the rates. When the global
share markets experienced a huge fall in 2008, Australia share market became unstable and
most of its banks suffered accordingly. Behind America the largest economy in the world,
Australia was ranked as the second largest distributor of asset-backed securities with the
fourth biggest fund managerial sector in the world at 1.2 trillion dollars (AUD) (RBA, 2017,

Title 10
p.99). Australian Banks were also seen after the GFC to have less than 18% of assets held in
offshore funding, while still being active in the international bond market with the biggest
hedge fund sector in Asia (Schwartz 2015, p. 19). Due to these figures, the average for an
Australian home price was seen to be at its most affordable point in history, as the average
house price slowly rose again.
Although Australia was viewed through performance indicators as the economies top
contender throughout and post the GFC, it did not, however, escape from the GFC unscarred.
Australian banks were seen to hold steady after the collapse of Americas fourth largest
financial firm Lehman Brothers Holdings, showing Australia’s integrity when they were
ranked in the top 40 banks worldwide after the Reserve Bank of Australia and the Federal
Government provided guaranteed bank deposits through the introduction of the Guarantee
Scheme to further encourage investors into long term bank debt and prompt continual growth
in the economy (RBA 2017, p.104). Post GFC, The RBA and the Australian Federal
Government continued to work simultaneously to ensure positive changes were made via
updated regulations in order to adapt to the conditions faced, while also controlling further
destruction to the already struggling economy.
After the introduction of the Guarantee Scheme that was run for a period of three
years, the RBA with revised securities allowed for guaranteed debt and deposits under $1m
(AUD) and fee-based options for debt and deposits over $1m (AUD), in an effort to re-
liquidise Australian financial markets (Schich 2008, p.76). According to Rudd (2009, p.20),
the scheme was to operate as a segment of the new retail deposit which guaranteed wholesale
term funding of Australian incorporated banks and other deposit-taking institutions that had
to pay a specified fee in return. As a result of these policy responses, financial market
conditions improved in the course of 2009. This was achieved through the abating of the
averted risk.

Title 11
The Australian share market then recovered almost half of their decline while credit
markets drastically started to reopen and function normally. The GFC effects in Australia
were considered minor as compared to different major economies. In this regard, the
Australian economy continued to record a significant growth outcome than other developed
countries that were exposed to severe recessions and a rise in unemployment. The financial
system of Australia was more resilient and most Australian banks profited and did not require
any help from the Government.
As much as the Australian economy remains relatively stable, the financial crisis is
not immune. The growth in the economy slowed by half a per cent and the unemployment
rate further rose to approximately 5.75 per cent in 2009 (Felton and Reinhart 2011, p.75). The
major impact of the financial crisis on Australian households was extensively felt in the
decline of equity prices that decreased Australian households’ wealth to almost 10 per cent.
However, at the end of 2009, Australian local market recovered half of its decline. As the
crisis intensified, the Australian dollar depreciated drastically by over 30 per cent. Lehman
bankruptcy made foreign exchange condition illiquid. This prompted the Reserve Bank of
Australia to take part in the market to improve market liquidity. Due to this intervention, the
Australian dollar recovered at a greater extent reflecting the relative potential of the
Australian economy.
Additionally, the money and credit markets of Australia have proven to be resilient as
compared to many economies therefore, necessitating less intervention by the Reserve Bank
of Australia. On a wide scope, this has reflected the integrity and health of the Australian
banking system. During the GFC period, most banks in Australia had minimal holdings of
these chronic securities that affected other worldwide banks (Gueyie 2013, p.252). The
Australian banking system facilitated effectiveness in both fiscal and monetary response by
easily allowing monetary policy to be passed through interest rates on loans to businesses. As

Title 12
a result of GFC crisis, the Australian Prudential Regulation Authority (APRA) and corporate
regulator, as well as financial market, Investment Commission and Australian Securities,
have formed stringent lending standards that make both the financial and private sector more
resilient.
Discussion
3.1 Sydney Office Properties, Vacancy Rates:
The property trust industry was also immensely affected by the GFC. Since the
government guaranteed bank deposits, withdraws from trusts accelerated in Q4 of 2008 due
to enormous outflows that were experienced in the first three quarters. Seemingly, numerous
trusts responded with freeze redemptions while others were suspended in 2009 that offered
withdrawals on a pro-rata basis. As indicated by Schich (2011, p.83), the government of
Australia made the proper initiative to establish a special funding vehicle to provide finance
for property dealers.
The lack of business formulated by the GFC limiting economic growth is vividly seen
through the decline in Sydney’s office vacancy rates. Q1 of 2007 showed the beginning of
Sydney’s vacancy rate deterioration for office space when it began to decline from the 10-
year average of 8%, while in Q1 of 2008 the vacancy rate had decreased by over fifty per
cent of the total figure when it plummeted to 3.8% (Swan 2017, p.24). By Q2 of 2009,
Sydney’s office vacancy rate begun to rise as it reached 7.9%, just below the 10-year average.
Sydney’s housing boom began to take place correlating to the sudden surge seen in Q2 2009;
this continued to grow up until Q1 2012 where it reached 9.8%.

Title 13
Figure 3 showing Sydney CBD vacancy rate over an average of 10 years
Source: JJL
Evidentially during the three-year period of the Global Economic Crisis vacancy rates
saw a substantial decline. The end of the GFC directly correlated with Sydney’s huge
housing market boom showed the Australian economy strengthen alongside the number of
leases and business expenditure resulting in a demand for office space, leading to a rise in
vacancy rates. Due to this correlation, Sydney CBD rates spiked to 9.8%, but as of Q2 2013
vacancy rates can be seen have taken a steady decline due to the volatile market during the
GFC settling as the economy levelled. The vacancy rate for the Sydney office is at figures
not seen since the GFC, with Q1 of 2018 at a low of 4.6% (Haq and Heaney 2009, p. 278).
In Sydney, Jones Lang LaSalle (JLL) is one of the commercial real estate companies
that portrayed a lot of resilience in the past global financial crisis. During the GFC, the firm
witnessed increased revenue and a strong profit performance recovery. Every operating
segment of the firm recorded a profit. The company generated a significant margin on
advisory fees which coupled with a rise in the capital. As recorded by Tonelli, Cowley and
Boyd (2014, p.300), the recorded rise in incentive and transaction fees was 5.9 million dollars
in the fourth quarter which was a 3.6 million dollar increase recorded in the previous year.

Title 14
The company also saw an increase in acquisition levels which bridged 19.6 million
dollars fee. A tremendous 13 per cent increase was also realized by EMEA which rose from
644 million dollars to 729 million dollar revenue in 2009. Capital markets and hotels
significantly contributed to this kind of revenue. According to JLL, the CBD office vacancy
rate in Sydney has fallen to 5.4 per cent from 7.7 per cent in the last quarter of 2018. The
amount of vacancy that was removed from the market covered an estimated area of 187,000
square metres for all CBD office market making the national vacancy rate to fall from 15 per
cent to 10.4 per cent.
Currently, the falling vacancies are lifting commercial property value across Sydney.
Vu and Turnell (2018, p.594) argue that employment is a major economic variable in the
office sector. The medium revenue outlook in corporate Australia has translated into viable
employment growth in 2017. In 2008, Sydney’s premium grade office vacancy rate dropped
to 5.1 per cent, one of the lowest prices since the September quarter of 2008. The prime rents
have currently risen to 20.5 over the year becoming difficult and more expensive for
corporations to meet their office needs in a centralized location.
Figure 4 showing the office vacancy rate by market between 4th quarter of 2016 and 2017

Title 15
Figure 5 showing the office vacancy rate in the CBD of Sydney and Melbourne
Sydney has ended the year with a strong position with the vacancy rate dropping from
16.8 per cent to 15 per cent which is a positive net absorption. According to Swan (2010,
p.13) the average vacancy rate for shopping centres has increased from 0.7 per cent to 3.3 per
cent in the first half of 2017. This increase is the highest rate possible since the 2009 global
financial crisis. In Sydney, the CBD markets are faring well with vacancy hovering at 2 to 3
per cent due to the limited supply of shopping centres, department stores and the flagship
stores of international retailers.
3.2 Sydney Office Properties, Market Rents:
The Global Financial Crisis predictably played a considerable role in the decline of
market rents for the Sydney office space. The average weekly cost of rent for office space in
Sydney was directly affected by the GFC as it declined from $600 (AUD) in Q1 of 2008 and
continued to fall until Q1 of 2011 where it can be seen to rise to $480 (AUD) . As economic
conditions stabled and growth began within the property sector market rent in Sydney’s
offices began to recover from the GFC by Q1 2013 where the market average is seen as $700
before further weakening occurred, and the market plateaued at an average of $680 in Q1 of
2016.

Title 16
Figure 6 showing the net effective rents by grade March 2008 and March 2018
Sydney office space graded as A and B, collectively experienced similar rates of extreme
decline in market rent during the Global Financial Crisis as the economy failed, before
plateauing from 2010 – 2015 (Gill 2011, p.12). However, premium office space was not so
lucky after being struck again in Q1 of 2013 where again the market saw a steady decline,
while grade A and B office space persisted to remain steady. Primarily this decline can be
established as for business affordability was key and high-end office space became a luxury
that was not affordable with many businesses downgrading levels of office space or failing.
As much as GFC had a significant impact on most Sydney office property, the market
rents have dramatically improved as compared to 2008. As revealed by the Commercial Real
Estate, the Sydney office market has tremendously outperformed over the first quarter of
2018 with secondary and prime net rents increasing by 3 per cent and 3.6 per cent
respectively (Hendershott 2016, p.70). The office leasing inquiries have also worsened with

Title 17
respect to the volume of space being sought.
Figure 6 showing Sydney CBD net effective rent index between 2014 and 2018
Source:JJL
For property managers, the downfall of Sydney office rent as a result of GFC would
have been an undesirable impact due to a reduction in income and loss in rent. Although,
from the perspective of an investor the Global Financial Crisis’s impact would have allowed
for a time frame where potential investments would have arisen accompanied by low
purchases prices, in order to supply office space to a market that was lacking funding for
developments and soon to recover and experience high demand.
3.3 Sydney Office Property outgoings levels
The Sydney office property outgoing levels are high. This depends on the
attractiveness of the office. Most premium-grade buildings that are typically located in the
CBD command the highest levels followed with A and B-grade or lesser quality building.
The Sydney office property located in areas which less accessible with fewer amenities
attracts less than the average commercial rent per square metre. The outgoings that are passed
to a tenant in Sydney comprises of land tax, building insurance, management fees and rates.
The commercial rates per square metre in Sydney CBD are so far the highest in Australia

Title 18
with prime grade, premium and A-grade at the net rental levels of 992 dollars per square
metre in a year.
3.4 Future forecast for Sydney Office Property:
Global economic conditions have improved since Q2 2016 throughout a broad range
of economies, seen through the global gross domestic product rate achieving its highest figure
since the GFC (RBA 2017, p.101).
Figure 7 showing the output growth and inflation forecasts between 2017 and 2019
Source: RBA
Australia’s economic conditions have also seen encouraging growth with the Reserve
Bank of Australia reporting uncertainty in only two sources, stemming for the labour market,
“First, it is not clear how much spare capacity there is in the labour market and how quickly it
might decline” and “Second, it is unclear how much the expected decline in spare capacity
will translate into building wage pressures (Crotty 2009, p. 571). Both these factors affect the
outlook for inflation and household income growth, which is a key driver of consumption and
therefore the GDP growth forecast.
In terms of assessing the GDP growth forecast, the risks around the outlook for non-
mining business investments are now seen as being more positive than previously” (RBA,
2017). These issues prompted the idea that markets within Australia such as the office

Title 19
property sector have strengthened and recovered since the GFC and the issues now no longer
face businesses but are aimed the human resources (HR) that combine to make the labour
market.
The future for Sydney’s office property sector is anticipated to sustain steady growth
based on the continued investment of infrastructure expenditure in Sydney. The production
by WestConnex of a $16.8B (AUD) underground motorway has been placed in order to allow
for better means of transport for the people of Sydney, including the HR that work within
Sydney office space (Murray et al.2019, p.46). Sydney Metro is currently undertaking the
$12.5B (AUD) infrastructure development, whereby 2019 they aim to have a completed train
line that would promote ease of travel to the Sydney CBD where prime office space resides.
On the other hand, other studies suggest that Sydney office property is projected to
experience a surge in the coming years.
According to the credit rating agency, Moody Analytics it is forecasted that the strong
growth in western Sydney will suffer a double-digit price falls (Acharya 2009, p.188). The
price growth around Australia has started to slow in recent months with falling values in
Sydney. This trend is likely to continue driven by tighter lending standards from Australia
banking regulator. Specifically, Sydney is expected to rebound in 2020 from a slump sparked
by a crackdown on investor loans. Moody Analytics expect Baulkham Hills which is the
north-west of Sydney to surge by 7.4 per cent in 2020 as much as it was it was among the
worst performing metropolitan market in 2018 (Wettenhall 2011, p.88).
3.5 Preventative Strategies for commercial Property Managers:
In order to combat or protect commercial property, managers must implement
strategies to prepare for future dangers that may come to light in the Australian Property
sector. Strategies that a commercial property manager may choose to impose to prevent loss
or decline of a properties net value include:

Title 20
Reviewing Management Contracts
It is important to manage the rate of expenditure on outdated or poorly formed
management. When the contract is not reviewed, it can sometimes become costly and affect
the status of a properties financial positioning. Additionally, managers ought to understand
their responsibilities to make sure they are protected if the landlord does not fulfil his or her
obligations (Chor and Manova 2012, p. 73). Reviewing the management contract will give
the property manager an upper hand to change charges that he or she had previously
underestimated. The contract review will also allow managers to update the contract and add
extra services that may protect commercial in future.
Strong Tenancy Ratio
Unlike residential properties, it is so difficult and expensive to search for new tenants
that can occupy commercial properties. It can take to approximately two to nine months to
find someone. By holding a strong tenancy mix managers are able to invest within office
space by leasing the available space to businesses in different markets to ensure a domino
effect is not initiated if all companies reside in the same sector (Estrada 2007, p. 174). The
best way for managers to maintain their income is to keep existing tenants from leaving. This
can be achieved by ensuring positive relationships with tenants through periodic
communication, being proactive as well as anticipating their needs.
Reviewing Rents:
Staying on top of the market rent price for office space is essential as it allows for
profit maximization, as well as preparation for unforeseen error. In this case, rents will be
reviewed when the value of the property is also improved (Bollen et al 2015, p.110). The best
way to increase the value of the property is by making targeted improvements. Since the
value of the commercial building is mainly derived from the income it produces, it makes it

Title 21
for property managers to quantify the value of improvement based on the significant rise in
rent.
Developing asset management plan
The managers should design a strategy for each property. The managers should also
give reasons why they are investing in that property. The upside potential of the property
should also be determined to come up with appropriate ways to achieve it. It is, therefore, the
obligation of the manager to know how best to achieve the stated objectives based on the
stated strategy.
Conclusion
As indicated by numerous kinds of literature above, it is clear that a drop in the
economic domain can directly affect property markets. The occurrence of the GFC in the
second quarter of 2007 has shaped different markets around the world which have resulted in
iconic events in the history of the global economy. Numerous causes of GFC were reported in
the US, UK as well as Australia. Some financial crises were timely while others were long-
lasting. The main causes of financial include mismanagement of financial system regulation,
misperception of the risk and interest rate levels.
The major driver of the crisis revolved around human psychology about risk
perceptions. Although the GFC affected some of the major economies, it is astonishing that
Australia was not largely affected by the impacts emplaced on the GFC. The banks in
Australia remained immune to the credit crunch. The Reserve Bank of Australia increased
rates as other countries tried to cut local interest rates. Most of the banks in Australia suffered
accordingly when the global share markets experienced a fall in 2008. During this GFC
period, Australia was ranked as the second-best distributor of asset-backed securities with the
fourth biggest managerial sector in the world. The persistent decrease in business formulated
by the GFC has resulted in a decline in Sydney’s office property vacancy rates.

Title 22
The deterioration of Sydney’s vacancy rate indicated in 2007 lead to the decrease of
office space. Additionally, the GFC also played a role in the decline of the market rents for
Sydney office space. The average cost of office space rent was tremendously affected by the
GFC and continued to drop until 2011 where it was seen to rise. In recent years, the global
economic conditions have improved throughout several economies and the global domestic
product rate is achieving its highest figure since the GFC. Finally, property managers should
formulate preventive strategies to protect commercial property in future. Reviewing
management contracts, strong tenant ratio and reviewing rents are some of the strategies that
property managers should formulate.

Title 23
List of references
Acharya, V.V., 2009. A theory of systemic risk and design of prudential bank
regulation. Journal of financial stability, 5(3), pp.224-255.
Bollen, B., Skully, M., Tripe, D. and Wei, X., 2015. The Global Financial Crisis and Its
Impact on A ustralian Bank Risk. International Review of Finance, 15(1), pp.89-111.
Chor, D. and Manova, K., 2012. Off the cliff and back? Credit conditions and international
trade during the global finance ial crisis. Journal of international economics, 87(1),
pp.117-133.
Crotty, J., 2009. Structural causes of the global financial crisis: a critical assessment of the
‘new financial architecture’. Cambridge journal of economics, 33(4), pp.563-580.
Estrada, J., 2007. Mean-semivariance behavior: Downside risk and capital asset
pricing. International Review of Economics & Finance, 16(2), pp.169-185.
Felton, A. and Reinhart, C., 2011. The First Global Financial Crisis of the 21st Century Part
II: June–December, 2008. Centre for Economic Policy Research.
Gill, S. ed., 2011. Global crises and the crisis of global leadership. Cambridge University
Press.
Gueyie, J.P., 2013. Bank moral hazard and the introduction of official deposit insurance in
Canada. International Review of Economics & Finance, 12(2), pp.247-273.

Title 24
Haq, M. and Heaney, R., 2009. European bank equity risk: 1995–2006. Journal of
International Financial Markets, Institutions and Money, 19(2), pp.274-288.
Hendershott, P.H., 2016. Property asset bubbles: evidence from the Sydney office
market. The Journal of Real Estate Finance and Economics, 20(1), pp.67-81.
Higgins, D., 2010. Current status of forecasting the performance of Australian commercial
property markets. Australian Property Journal, 36(1), p.43.
International Monetary Fund Staff, 2011. Mongolia: Financial System Stability
Assessment (No. 11-107). International Monetary Fund..
Karas, A., Pyle, W. and Schoors, K., 2013. Deposit insurance, banking crises, and market
discipline: Evidence from a natural experiment on deposit flows and rates. Journal of
Money, Credit and banking, 45(1), pp.179-200.
Kindleberger, C.P. and Aliber, R.Z., 2011. Manias, panics and crashes: a history of financial
crises. Palgrave Macmillan.
Murray, J., Parker, D., Peng, V. and LaSalle, J.L., 2019. Forecasting property market cycles:
an application of the RICS model to the Sydney CBD office market.
Obstfeld, M. and Rogoff, K., 2009. Global imbalances and the financial crisis: products of
common causes.
Raymond, Y. and Fischer, D., 2013. Estimating natural vacancy rates in office markets using
a time-varying model. Journal of Real Estate Literature, 11(1), pp.35-46.
Reinhart, C.M. and Rogoff, K.S., 2009. The aftermath of financial crises. American
Economic Review, 99(2), pp.466-72.
Reserve Bank of Australia’s Statements on Monetary Policy, last viewed November 2017.
Retrieved from http://www.rba.gov.au/publications/smp/index.html on 20th February
2019.
Rudd, K., 2009. The global financial crisis. Monthly, The, (Feb 2009), p.20.

Title 25
Santos, J.A., 2016. Insuring banks against liquidity shocks: the role of deposit insurance and
lending of last resort. Journal of Economic Surveys, 20(3), pp.459-482.
Schwartz, C., 2015. The Australian government guarantee scheme. Reserve Bank of Australia
Bulletin, pp.19-26.
Schich, S., 2011. Financial turbulence. OECD Journal: Financial Market Trends, 2008(1),
pp.55-79.
Swan, W., 2017. Government announces details of deposit and wholesale funding
guarantees. media release, (117), p.24.
Swan, W., 2010. Government withdraws bank funding guarantee and state guarantee. media
release, 13(7).
Tonelli, M., Cowley, M. and Boyd, T., 2014. Forecasting office building rental growth using
a dynamic approach. Pacific Rim Property Research Journal, 10(3), pp.283-304.
Vu, H. and Turnell, S., 2018. Cost and profit efficiencies of Australian banks and the impact
of the global financial crisis. Economic Record, 87(279), pp.525-536.
Wettenhall, R., 2011. Global financial crisis: the Australian experience in international
perspective. Public Organization Review, 11(1), pp.77-91.

1.5 18 Smith Street Parramatta - Source: Corelogic
Title 26
Appendices:
1.1 - Case Study
1.2- Interview
Greg Hargreaves, Managing Director of
Hargreaves Property Group
18 Smith Street Parramatta, NSW, 2150
NABERS 4.5
Town planning B3 commercial Core
Sold (2016) $84,027,444
Land Area 2,621m2
NLA 12,069m2
Parking 172 Car spaces
WALE 3.7 years
Age 1996 (21 years)
Refurbishments
(Previous CapEx)
2010
- New Chillers
- New Colling Towers
- New Condenser Water
Pumps
- New BMS
2014
- T5 lighting upgrades
- End of trip upgrades
(showers and bike racks)
2015:
- Bathroom Refurbishment
level 7
2016
- Entry foyer and lift lobby
refurbishment
- Bathrooms - level 8-12
- Led lighting upgrades -
levels 8-12
- Lift lobby – Level 4

Title 27
How did the Global Financial Crisis effect you (or the company in which you worked) as a
professional within the Property sector?
Working within Property development, the GFC affected the amount of developments we
were able to undertake. Property development dropped off quite significantly for about 2
years, as I suspect, was due to tighter controls on money lending and the fall in real estate
value.
What sort of effect did the GFC have on various property metrics of the Office sector (i.e.
Rent, vacancy rates, supply outgoings etc)
A couple years before the GFC hit my business developed offices over retail, so I witnessed
first-hand the effect of the GFC on the metrics you have stated. Rent, at first did not change
due to agreed rent agreements, however when rent was up review 6 months after the GFC
began, I saw a 10-15% decrease, which was largely seen throughout the property industry.
Vacancy rates however did not change from my experience; I’d say this is most likely due to
the slowing down of new developments from 2007-2009.
Did the property sector recover well following the GFC? Did this recovery occur faster or
slower than you expected?
Yes, it did. It was surprising from my perspective how well it did recover. Optimism was
high in 2010 within Property Development, and I think lowered interest rates following the
GFC contributed to this, because it provided more flexibility to developers and the prospect
of higher profit margins – thus leading to more developments being undertaken.
1.3- Required Business Card
(add after)

Title 28