If the media has led you to believe investors are facing a growing risk of having their rental properties sit vacant, the most recent data tells a very different story.

Over the coming weeks, I will expose the regions within Australia that are dramatically undersupplied with rental properties. These areas not only defy the myth that COVID-19 is creating a glut of vacant properties, but they are also well-positioned for strong growth in rental income.

If you are not familiar with typical Investor expectations around vacancy rates, here’s a basic outline:

  • Under 1%: Rental crisis situation
  • Under 2%: Undersupply of rental properties 
  • Under 3%: In favour of the landlord
  • Above 3%: Slightly in favour of the tenant
  • Above 4%: In favour of the tenant
  • Above 5%: Evidence of rental property oversupply 

The following content was shared by one of Australia’s most respected property market analysts, Louis Christopher. Louis is Director of SQM Research.

 

Here is the most recent update on the vacancy rates within our capital city markets from SQM Research:

National Rental Vacancy Rates Decreased in July

The national residential rental vacancy rate recorded a decrease over the month from 2.2% in June to 2.1% in July 2020.

The new financial year commenced with the total number of vacancies Australia-wide now at 71,760 vacant residential properties.

This time last year, the national vacancy rate was slightly higher at 2.3%.

All capital cities recorded declines in vacancy rates over the month except for Melbourne which recorded a 0.1% increase to 3.1% for July.

Sydney currently has the highest vacancy rate in the nation at 3.6%, having declined by 0.2%.

Hobart’s vacancy rate is the lowest in the nation at 0.7%, having declined by 0.2% over the month.

Darwin recorded the largest decline in rental vacancy rate of 0.4% to now record a low vacancy rate of 1.4%.

 

City July 2019 Vacancies July 2019
Vacancy Rate
June 2020 Vacancies June 2020
Vacancy Rate
July 2020 Vacancies July 2020
Vacancy Rate
Sydney 24,869 3.5% 27,710 3.8% 26,506 3.6%
Melbourne 11,674 2.0% 18,116 3.0% 18,746 3.1%
Brisbane 8,154 2.4% 8,127 2.4% 7,593 2.2%
Perth 6,303 3.0% 3,272 1.5% 2,803 1.3%
Adelaide 2,034 1.1% 1,992 1.0% 1,809 0.9%
Canberra 747 1.1% 731 1.1% 653 1.0%
Darwin 913 2.9% 575 1.8% 453 1.4%
Hobart 147 0.5% 272 0.9% 212 0.7%
National 76,338 2.3% 77,132 2.2% 71,760 2.1%

 

SQM’s calculations of vacancies are based on online rental listings that have been advertised for three weeks or more compared to the total number of established rental properties.

SQM considers this to be a superior methodology compared to using a potentially incomplete sample of agency surveys or merely relying on raw online listings advertised.

Please go to our Methodology page for more information on how SQM’s vacancies are compiled.

Some capital city CBD locations have also recorded declines (from their record highs) in vacancy rates over the month, namely Sydney CBD dropping to 13.2%, down from 13.8% in June; Brisbane CBD’s vacancy rate decreased from 14.0% in June to 13.0%Melbourne’s CBD remained stable at 8.8%.

However, Adelaide CBD has increased to 7.6% from 7.1% in June and Perth CBD is now up from 5.3% to 5.5%.

 

Commentary 

Rental vacancy rates for most capital cities recorded a decline over the course of July.

We are now observing a clear trend of reduced rental vacancies in outer suburban locations and regional locations around Australia.

However, when looking into the numbers it is clear there are still very elevated levels of rental vacancies in the inner-city locations.

We believe there has been a move towards outer regional living and away from high-density areas.

This very likely has been as a result of fears surrounding Coronavirus and the ability for many employees (particularly in the corporate sector) to work remotely.

 

 

Article by SQM Research