With 60% of Australians still in lockdown, the nation’s rental market has started running at different speeds. But it’s not necessarily splitting in the same way many may have imagined, with Sydney’s market tightening during restrictions, as Melbourne’s becomes less competitive.
Sydney holds firm while Melbourne stutters
At the time of writing, NSW, Victoria and the ACT remain in lockdown while other states and territories enjoy different levels of freedom.
Despite a lack of immigration reducing demand for inner-city apartments, Melbourne’s rental market was gaining momentum in the first part of the year. Rents were rising incrementally, particularly over the past quarter. Our teams were fielding an increasing number of enquiries, especially for large family homes, and it seemed a level of confidence and activity had returned. That’s since changed, with the city’s vacancy rate rising for the first time this July. This was followed by another small rise in August.
That said, some parts of Victoria’s rental market have been exceptionally strong, most notably, those places attracting people looking for a lifestyle change. The median rent has lifted 50% in some regional areas over the past 12 months, including premium beachside locations such as the Mornington Peninsula.
In Sydney, we’ve seen a very different pattern emerge. The rental market has held firm, especially compared to 2020, with rents increasing slightly over August 2021 to a median of $701 for houses and $466 for units. Sydney’s vacancy rate of 2.6% is now more than a full percentage point below Melbourne’s, which stands at 3.8%. We think this is partly because NSW’s government, unlike Victoria's, is offering rental relief to tenants suffering financial distress. But it’s also partly because Sydney’s house prices have been rising so rapidly, many have been forced to stay put (more on that later).
Our Sydney-based teams have observed tenants are particularly active in the market for renovated houses and quality terraces within a 15km radius of the city. The continued exodus to regional areas is also putting pressure on the rental markets in the Illawarra and Central Coast, as well as other commuter centres.
The rest of the country
In the West, it continues to be all good news for property investors. The Perth rental market has continued to experience soaring tenant demand, low vacancy rates and rising rents. Yields now stand at 5.3% for units and 3.9% for houses - that compares to an average of 2.8% in Melbourne and just 2.5% in Sydney
Meanwhile, Domain data from August shows the national vacancy rate is now 1.6%, down from 2.1% a year ago. Brisbane sits at 1.4%, the ACT is 1.1% while Perth is a super tight 0.7%.
Is the property boom slowing down?
Rather than rents, it has been the boom in property prices that’s taken centre stage over the past 12 months. Corelogic’s National Home Values Index showed continued growth in sales prices, rising 1.5% in August, 5.2% over the quarter and 18.4% over the past 12 months. But there are indications that some of the heat is coming out of the market, with lower levels of growth than we saw earlier this year.
Hobart (2.3%), Canberra (2.2%) and Brisbane (2.0%) saw the largest monthly gains, while Sydney (1.8%) continued to show impressive growth even through the city’s lockdown - a sign of just how hot the city’s property market has become.
The median Sydney property has now grown 19.8% this year to stand at $1,039,514. But as impressive as that is, it has actually been outdone by Darwin (22%), Canberra (22.5%) and Hobart (24.5%). To put this growth into perspective, an investor who owned a Hobart property worth $500,000 at the start of the year could now expect it to be worth $512,500. And that’s on top of a median yield of 4.0%, on $385 rent a week.
The combined regional areas also continued to perform strongly, outperforming the combined capital cities registering a median growth rate of 5.4% over the past quarter.
As we discussed in The Agency’s Winter Property Report, price rises have been driven by a range of factors including low interest rates, ease of borrowing and the return of over half a million expat Australians to our shores.
Properties with something extra are hugely popular
In Melbourne, 110/6 Lisson Grove, Hawthorn highlights the increased demand since COVID-19 for additional living or outdoor areas.
This one-bedroom apartment was not only very well presented, but it also offered the unique benefit of a good-sized courtyard. While its asking price of $400 per week was higher than any other one-bedroom in the market, it attracted significant renter interest.
Just one open home was held before Melbourne headed into lockdown - enough time for us to receive eight applications, with another 20 renters waiting to inspect.
Local experience matters
In Sydney, we recently leased a three-bedroom terrace house at 15 Jennings Street, Alexandria for $20 above its asking rent.
We received six applications within 10 days and secured the profile of the tenant that the landlord had hoped for. Interestingly, an almost identical adjoining property was leased two weeks beforehand for $210 a week less. This discrepancy shows that it pays to use an agent who knows the area intimately and has built strong relationships with high-quality prospective tenants.
Our advice for areas in lockdown:
As we enter Spring, there’s usually a sense of optimism in the air but, right now with uncertainty surrounding the pandemic, we see this tempered by a pragmatic, wait and see approach from both landlords and tenants.
In the short term, property investors should remain optimistic, but also realistic about current market conditions.
If vacancy rates rise, renters will have more choice, so we’ve been advising landlords to focus on the ‘three P’s’ - positioning, presentation and price. We recommend focusing on what you can do to make your property stand out to prospective tenants. Be prepared for prospective tenants to make an offer rather than sign a contract at the advertised price. And, if your property is rented, be circumspect when it comes to increasing the rent.
The future looks different
In August, Adrian Kelly, President of the Real Estate Institute of Australia, argued in an opinion piece that we only need to look overseas to acknowledge the reality that, while we all need to embrace vaccination, the COVID-19 pandemic will not come to a complete end once we’ve all had the jab.
Other safety measures, including masks, social distancing, QR codes and the trace, test and quarantine system will continue to be ongoing features of our lives. Everything has been impacted and the real estate industry is no exception - something we need to bear in mind for property management.
Kelly argues that as a nation we need to put in place: “risk-based, pragmatic rules that are consistent across Australia so housing continues to function for the benefits of home buyers, owners, tenants and investors”. We agree and believe that as a real estate group we have a vital role to play in leading the way to create a safe and viable property and rental market.
As a business, we’ve been able to adapt and pivot quickly and minimise any disruption to operations despite the lockdowns. In particular, our investment in technology, experienced property management staff and flexible, innovative approach has come to the fore.