An Economic And Commercial Analysis Of Sydney CBD

Commercial and Property Market in Sydney CBD

Question:

Discuss about the Commercial Property Analysis of Sydney.

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.    

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 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 Management.

Location and Importance of Sydney CBD

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.

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 jurisdictions are dealt in the region in Sydney city, where Council reserves right for making any decisions pertaining to relevant situations.

Economic and Commercial Factors affecting Sydney CBD

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.

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 Management, Governor Philip Tower and World Tower has enabled the locality to gain much importance related to the locality.

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.

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 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.

Property Prices in Sydney CBD

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.

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.

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 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.       

Analysis of Sydney CBD's Property Market

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. 

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 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.

Economic Impact of Sydney CBD on Australia

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 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).

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 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. 

Factors Driving Demand for Commercial Properties in Sydney CBD

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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