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Tuesday 14 July 2020

Rental vacancies are falling sharply

Rental vacancies plunge

Kudos to Louis Christopher of SQM Research for correctly anticipating that rental vacancies would fall to be lower than a year earlier following a strong trend reversal in online listings. 

There's another narrative to overlay here, and that being the resources capitals could fare surprisingly well from a rental market perspective now. 

Following Vale's Brazilian operations closures the iron ore price has ballooned to US$111/tonne following strong gains in the futures markets, and this tends to be positive news for Western Australia. 

Sure enough Perth and Darwin saw huge year-on-year declines in rental vacancy rates in June.

Perth's vacancy rate has dropped from 3.2 per cent a year ago to just 1.5 per cent.

In Darwin the equivalent decline has been from 3.1 per cent to 1.8 per cent.

Brisbane saw a modest decline from 2.5 per cent to 2.4 per cent in June, with suburbia faring very well, though the Brisbane CBD itself has a high vacancy rate of 14 per cent.

Hobart (0.9 per cent), Adelaide (1 per cent), and Canberra (1.1 per cent) now all have tight rental vacancy rates following recent declines. 

The vacancy hotspots remain in the CBDs of Sydney (13.8 per cent), Melbourne (8.8 per cent), and Brisbane, as well as in Melbourne's Docklands (16.2 per cent)...and Palm Beach, which has a very high vacancy rate. 

But despite this, vacancies did decline in the largest two CBDs In June, as well as across Sydney and Melbourne more broadly.

The wrap

Clear signs here that rental vacancies are now tightening, with national vacancies falling from 2.5 per cent to 2.2 per cent in June.

That means a decline from 86,398 vacancies May to just 77,132 in June.

A few more months like that would see the narrative shifting to that of a landlords’ market.

One of the mechanisms through which empty rentals are filled is a lower median price of property rented, and asking rents are a few per cent lower than a year earlier, most notably in Sydney. 

Although international travel is severely impeded, people are naturally likely to gravitate towards perceived safer countries such as Australia and New Zealand over time, while the supply of new rental housing has dropped sharply. 

Vacancy rates still remain high for now in the CBD areas of Sydney, Melbourne, and Brisbane, and at Melbourne's Docklands. 

Many of these units and studio apartments were previously short stay lets, Airbnb, and student rentals.