As a property analyst, you
are required to carry out a ratio analysis report for your client who has an
opportunity to purchase an income-producing
commercial
property
in Sydney or any major city of Australia.MKTG7023 Property Investment and Risk Management Assignment 1 Due Date: 28th July 2023 by 11:00PM Weighting: 40% Assignment Details: As a property analyst, you are required to carry out a ratio analysis report for your client who has an opportunity to purchase an income-producing commercial property in Sydney or any major city of Australia. You must identify an income-producing commercial property that is still in the market or recently sold (as recent as June 2023 to date) and obtain the information for the property as follows: a) Property Data - asking price of the property, acquisition costs including legal fees etc. b) Income Data - vacancy rate, current rent, operating expenses (outgoings) etc. There are 5 major parts of this report: Part 1: Introduction You should provide the identification of the property. It includes descriptive information of the subject property. Part 2: Property Market Provide a review of market fundamentals and the property market. The review should be done at two levels covering the period 2018 -2023. i. The first level is a review of key market fundamentals of Australia such as cash rate, GDP, inflation/consumer price index, unemployment rate, and population growth. ii. The second level is a review of key property parameters of the local market of the subject property such as Sydney, Melbourne etc., focusing on vacancy rate, demand, supply, price, rent, incentives, investment activity, and yield. Part 3: Mortgage Requirements i. You are also required to obtain mortgage information for your client. Identify the amount of loan that is required, term and repayment frequency and interest rate. Based on the information, calculate the loan/mortgage repayment. ii. You should compare mortgage payment from at least 3 lending institutions from which you will recommend one to your client. Part 4: Ratio Analysis By utilising the collected data, conduct a detailed ratio analysis. A table consisting of all essential information is also expected. Part 5: Conclusion and Recommendation This section should provide a conclusion of the report. Your recommendation should be given. Assignment Requirements · The report is to be submitted through the Turnitin Link provided on vUWS. · Although there is no page limit, this assignment should not exceed 1,000 words excluding tables, figures, references, and appendices using 12 points font size and 1.5 spacing. · For the avoidance of doubt, although referencing and acknowledgements will be reflected in a marking schedule, failure to reference and acknowledge will lead to an automatic failure of the assignment with a 0 mark. · There should be a minimum of five (5) academic references. Wikipedia, Investopedia, and anonymous amateur blogs should not be used as references. · Late submission without any extension approval will be penalised in accordance with the Western Sydney University’s Assessment Polity at the rate of 10% of awardable marks per day or part of day late. Please refer to the learning guide for more details. Unit Code: MKTG7023Assignment 1Quarter 1 2023 MKTG7023 PROPERTY INVESTMENT AND RISK MANAGEMENT ASSESSMENT 1 MARKING GUIDE QUARTER 3 2023 DESCRIPTION MARKS POSSIBLE MARKS AWARDED Introduction Is the subject property clearly identified? 10 Property Market Does this section provide a full picture of the property market? 20 Mortgages Requirement Is the client’s mortgage requirement clearly explained? 10 Ratio Analysis Does the table exhibit essential information? Is the ratio analysis comprehensive? And accurate? 35 Conclusion Are the key findings summarised? Is recommendation being made? 10 Citation of References and Sources Are the sources of the information being referenced? Is the referencing Harvard styled? 10 Format Is it as suggested? 5 Total 100 CBRE Research_Australian Office_Figures_Q2 2022 1 CBRE RESEARCH © 2022 CBRE, INC. FIGURES | AUSTRALIAN OFFICE | Q3 2022 Note: Arrows indicate change from previous quarter. Key Points ‒ Labour market remains tight with unemployment at 3.5%, the lowest level in almost 50 years. ‒ Office demand was robust in H1 2022, with net absorption of 85,986 sqm. Over the last twelve months, net absorption across Australia’s CBDs was 250,587 sqm, the highest level since 2016. ‒ National CBD vacancy edged up to 12.0% in June 2022, from 11.3% at the end of 2021, as new supply outstripped demand. ‒ Growth in face rents accelerated across some markets as construction cost pressures push economic rents of new projects higher. ‒ Early evidence of incentives dropping as landlords are more focussed on income, given cap rates have stabilised and will start to soften. ‒ Sales volumes were robust, although the expectation is that activity will soften in Q4 and early 2023 ‒ A lack of evidence has meant yields are largely stable, although will soften in the coming quarters FIGURES | AUSTRALIAN OFFICE | Q3 2022 Rental growth accelerates, off the back of construction costs 38.0% AUS Average Prime Incentives $5.3b AUS Sales Volumes Q3 22 FIGURE 1: Australia CBD Prime Office Rents and Incentives Source: CBRE Research 4.7% y/y AUS Average Prime NER 4.93% AUS CBD Prime Yield 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 0 100 200 300 400 500 600 700 800 900 1000 M ar -1 0 Se p- 10 M ar -1 1 Se p- 11 M ar -1 2 Se p- 12 M ar -1 3 Se p- 13 M ar -1 4 Se p- 14 M ar -1 5 Se p- 15 M ar -1 6 Se p- 16 M ar -1 7 Se p- 17 M ar -1 8 Se p- 18 M ar -1 9 Se p- 19 M ar -2 0 Se p- 20 M ar -2 1 Se p- 21 M ar -2 2 Se p- 22 $/ sq m Incentive (RHS) Net Face Rent Net Effective Rent 2 CBRE RESEARCH © 2022 CBRE, INC. FIGURES | AUSTRALIAN OFFICE | Q3 2022 Rents and Incentives Rental growth continues to accelerate across some markets The rental recovery story is continuing across the Australian office market. Upward pressure on construction prices has remained, which is meaning new projects are costlier and are forcing developers to increase their rents. This is flowing through to the existing market where landlords are achieving higher face rents. The Sydney CBD lead the way in Q3 with face rental growth of 3.2% q-o-q and 4.0% y-o-y. The market has seen some improved leasing activity lately. Brisbane has observed the highest face and effective rental growth so far in 2022, with a significant amount of major tenants either making leasing decisions or in the market considering options. Pressure coming on incentives given potential yield softening While face rents have been rising for a while, drops in incentives are more recent. Perth and Brisbane have seen the largest drops, albeit off the highest base, while Sydney is also seeing a tightening. Owners appear to be more income focused given the interest rate environment will cause yields to soften of the coming year. This has meant they are trying to reduce the incentives being offered to tenants. However, the higher construction prices are flowing through to higher fit-out costs which are generally captured within the incentives. FIGURE 2: Australia CBD Prime Office Key Market Indicators & Forecast Direction – Q3 2022 Abbreviation: R - Net Face Rent, I – Incentives, Y- Yield. Source: CBRE Research WA Q3’22 q-o-q y-o-y R $638 2.0% 4.7% I 49.0% -100bps -183bps Y 6.36% +10bps +9bps SA Q3’22 q-o-q y-o-y R $459 0.0% 0.8% I 34.5% +11bps +58bps Y 6.02% 0bps -29bps VIC Q3’22 q-o-q y-o-y R $689 0.6% 4.1% I 40.3% -9bps 54bps Y 4.66% 0bps -3bps ACT Q3’22 q-o-q y-o-y R $448 0.0% 2.5% I 25.0% 0bps 0bps Y 5.33% +7bps -4bps NSW Q3’22 q-o-q y-o-y R $1,323 3.2% 4.0% I 32.8% -90bps -110bps Y 4.50% Stable -6bps QLD Q3’22 q-o-q y-o-y R $701 2.5% 5.4% I 41.1% -182bps -107bps Y 5.38% 0bps +6bps 3 CBRE RESEARCH © 2022 CBRE, INC. FIGURES | AUSTRALIAN OFFICE | Q3 2022 Figure 3: Net Absorption by Market (as % of total stock) Source: PCA, CBRE Research Demand and Vacancy Net absorption remains positive across the country Office demand has remained solid across Australia in H1 2022, with total CBD net absorption of 85,986 sqm. Over the past 12 months, net absorption reached 250,587 sqm which was the highest level since 2016. Total occupied stock in Australian CBDs is now about 1% higher than pre-COVID levels, which has meant that the office demand recovery has been the second fastest (behind the GFC) of the five major downturns since 1990 (see figure 8). The Brisbane CBD saw the most significant rebound in demand, mainly due to its largest private tenant, Suncorp, moving into its new premises at 80 Ann Street, after a short period of not occupying any space in the CBD. Perth also saw decent absorption (13,302 sqm) off the back of robust economic conditions and some centralisation of tenants. Sydney and Melbourne are seeing solid leasing activity, yet actual tenant expansion has been less pronounced, given large corporates are still looking at efficiencies in response to hybrid working. Vacancy rises off the back of new supply Overall vacancy rose in H1 2022 across the Australian CBD market, from 11.3% to 12.0%. The reason for this was net supply (237,331 sqm) outstripped net absorption (85,986 sqm). Key supply additions were Quay Quarter Tower in Sydney (87,200 sqm) and 80 Ann Street (59,000 sqm) in Brisbane. Every major market outside of Adelaide and Perth have recorded higher vacancy over the past 12 months. However, the outlook for supply is less significant, particularly in 2025, which should help the market to tighten over the medium term. Figure 4: Total Vacancy Source: PCA, CBRE Research -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% Australia CBD Sydney CBD Melbourne CBD Brisbane CBD Adelaide CBD Perth CBD Canberra H1 2021 H2 2021 H1 2022 12.0% 10.1% 12.9% 14.0% 14.2% 15.8% 8.6% 6% 8% 10% 12% 14% 16% 18% Australia CBD Sydney CBD Melbourne CBD Brisbane CBD Adelaide CBD Perth CBD Canberra Jun-21 Jun-22 4 CBRE RESEARCH © 2022 CBRE, INC. FIGURES | AUSTRALIAN OFFICE | Q3 2022 Sydney Net face rents for Prime Grade stock in the Sydney CBD averaged $1,323/psm in Q3 2022, representing annual rental growth of 4.0%. Leasing activity appears to have risen in Sydney as tenants better understand their future office requirements with H1 net absorption a robust 21,700 sqm in the CBD. Although prolonged decision-making is evident across the board, tenant demand is expected to remain resilient as we continue to see larger occupiers with more conviction. In the Sydney CBD, there are currently six major developments expected to be completed over the next three years. These developments will deliver circa 237,000 sqm with a total pre-commitment of approximately 53% to date. Melbourne The Melbourne CBD continues to observe the slowest return to office of the major markets, averaging 41% in September, although peak days reached 60% for the month. Given this slower than expected return to office, major leasing decisions have taken longer than other markets, yet activity does appear to be improving. Rental growth is starting to come through with face rents up 4.1% y-o-y. This rental growth is most prevalent in key pockets of the CBD where tenants are most active such as the Eastern Core. Leasing activity is expected to improve in Q4 2022 and early 2023 as corporates are more willing to make longer term decisions. Brisbane The leasing market in Brisbane has been the most active of any of the major markets in 2022. This trend has continued with tenants such as Gadens (4,500 sqm) and Boeing (12,000 sqm) committing to new space recently. Rental growth is also leading the country, with face rents up 5.4% y-o-y and effective rents up 8.3% y-o-y. Queensland has experienced some of the highest construction cost impacts in Australia in 2022 off the back of the floods and strong population growth driving housing construction. This has pushed economic rents higher for new developments which is flowing through to higher rents for existing buildings. Landlords are also able to push rents higher given the lack of supply, with no new developments due for completion until early 2025. Perth Occupier activity has continued to be strong in Q3 2022 with new leasing deals over 500 sqm amounting to approximately 68,000 sqm year to date to end of Q3, up 19% y-o-y. Physical occupancy in the Perth CBD continues to improve with all COVID-19 restrictions now removed. Having fallen to 45% physical occupancy in Q1, occupancy has recovered to 76% in September 2022, according to the Property Council of Australia's latest office occupancy survey. During Q3 prime net face rents increased to $638/sqm (+2.0% q-o-q and +4.7% y-o-y) Prime rent growth has been led by grade A+ and grade A assets while rents in premium grade assets have been more muted due to supply headwinds. Adelaide The Adelaide office market has proven to be resilient throughout the COVID-19 pandemic. Physical occupancy averaged 78% in September compared to pre-COVID levels