With all of the recent property talk being about lockdowns, JobKeeper and (so-called) record high vacancy rates, one might be thinking that Australia is littered with empty dwellings are falling rents. To the contrary, the opposite is true!
Official data as at the end of June 2020 confirms that only 4 out of 52 major Australian towns, which includes our eight capital cities, have a current residential vacancy rate of 3 per cent or higher.
Generally speaking, a market with a balanced supply has a vacancy rate between 2 and 3 percent. Higher than 3 percent means the scales are tipped in the tenant’s favour, typically causing a reduction in median rent prices.
Sydney (3.8 percent), Melbourne (3 percent), Geelong (3.5 percent) and Gold Coast (4 percent) are the only four cities in Australia (out of 52) which are currently in a technical ‘over-supply’ situation.
A vacancy rate below 2 percent resembles a tight rental market and median rents are generally rising. Below 1 percent vacancy is incredibly tight.
Right now, 39 out of 52 Australian towns (75 percent of the country) currently have an under-supply, nine locations have a balanced market and the remaining four are over-supplied.
While those numbers might surprise some people, they really shouldn’t. Directly before COVID, Propertyology’s 2020 Market Outlook flagged widespread housing under-supply.
It’s not as if the coronavirus dumped thousands of extra dwellings on this Land Down Under!
Australian Capital Territory
Canberra vacancy rates have been below 2 percent since 2015. Consequently, median rents in the nation’s capital have increased by 21 percent over the last five calendar years.
The headline vacancy rate for Greater-Brisbane as at June 2020 was 2.4 percent, well down on the 3 percent from 2-years earlier.
Brisbane CBD has an all-time record high 9.2 percent vacancy while the inner-city suburbs sit at 4.2 percent.
Most of suburban Brisbane has a balanced situation with the eastern and southern suburbs both on 2.3 percent and the northern suburbs and the west (Ipswich) 1.2 percent each.
Regional Queensland, home to more than half of the state’s population, have some incredibly tight rental markets. Toowoomba, Mackay, Rockhampton, Sunshine Coast, Mount Isa, Bundaberg, Townsville and Hervey Bay are all well under 2 percent vacancy.
In the beautiful tropical north city of Cairns, which (officially) produced a bigger increase in jobs than any other location in Australia over the 2-years ending February 2020, vacancy rates have firmed at 2 percent.
The official data from SQM Research supports the on-the-ground observations of Propertyology’s buyer’s agents who have already helped dozens of property investors to purchase investment properties in some of these locations where the intense demand is driving growth of (both) asset values and rents.
Greater-Melbourne’s 3.0 percent vacancy rate is undesirable, but not catastrophic. The Inner East (3.7 percent) and South West (2.9 percent) are lofty, whereas there’s nothing concerning about the western suburbs (2.5 percent), eastern suburbs (1.7 percent) and northern suburbs (1.9 percent).
With COVID driving many city-based workers and students out of city centres, Melbourne’s CBD vacancy rate of 6.7 percent is up there with the many high-rise apartments that grace its skyline.
For some property investors that might be experiencing cashflow pain from these high-density apartments, they may consider the current situation to be the final nail in the coffin and seriously consider selling to divest their capital into alternative property assets with better potential.
Shepparton (a very tight 1.2 percent vacancy rate), Warrnambool (0.7 percent) and Mildura (0.6 percent) offer good lifestyles, incredibly affordable housing and very tight rental supply.
Ballarat and Bendigo (both 1.7 percent vacancy) are major regional centres which have already outperformed most capital cities over the last few years.
Australia’s strongest state economy and internal migration drawcard has been dealing with an extreme housing under-supply for a few years.
Even this unprecedented global pandemic couldn’t put a dint in Hobart’s long-running low vacancy rate. Today’s 0.9 percent vacancy rate for Greater-Hobart continues to be the tightest of all capital city property markets.
Hobart disallows high-rise developments and the city hasn’t experienced the mass exodus of tenants from inner-city apartments that has occurred in Australia’s big mainland cities. Hobart CBD’s vacancy rate in June 2020 is a very low 0.9 percent, while the eastern suburbs (0.7 percent) and western suburbs (0.6 percent) are even tighter.
Launceston, in the state’s north where (arguably) the world’s highest quality agriculture and wine is produced, housing supply is again tight (1.3 vacancy rate and 6.3 percent increase in rents last year). This is one of several influences on Launceston’s strong property market.
Burnie, the regional capital of north-west Tasmania, has an even lower vacancy rate of 0.4 percent.
Perth’s rental market has been Australia’s biggest capital city improver over recent years. The June 2020 vacancy rate of 1.5 percent is lower than pre-COVID and well down on the 4.1 percent this time 2-years ago.
As with several other big cities, Perth’s inner-city property market has been problematic for several years and the current 5.1 percent CBD vacancy further compounds the problem for apartment investors.
Western Australia’s regional markets have tightened right up over the last couple of years. In the mid-west, Geraldton vacancy rates have reduced from 4 percent to 2.1 percent over the last 2-years. Bunbury (1.8 percent), Albany (0.8 percent), Esperance (0.7 percent) and Busselton (0.5 percent) also have very tight supply.
New South Wales
Sydney has been dealing with rental over-supply for quite some time. Its vacancy rate surpassed 3 percent back in November 2018, peaked at 4 percent in May 2020, and is currently still 3.8 percent.
Over the 5-years ending 2019, Greater-Sydney’s median rent for detached houses has increased by a mild 5.8 percent.
With thousands of inner-city tenants employed in hospitality, the latest vacancy data suggests that 1 in 8 Sydney CBD apartments were empty as at June 2020 (12.7 percent). It may be years before inner-city apartments next experience pressure on rents.
Suburban Sydney are currently at different degrees of high vacancies. Ryde (5.7 percent) and the eastern suburbs (5.2 percent) are among the highest. The inner-west (4.2 percent) and Parramatta (4.8 percent) are soft markets, whereas the western suburbs (3 percent) and Canterbury-Bankstown (2.8 percent) are at equilibrium levels.
The last time I checked, Sydney is a city not a country. The sooner people accept that many things about Sydney are in stark contrast to the rest of our country the better for everyone!
The big regional cities of Newcastle (1.9 percent) and Wollongong (1.4 percent) have tight rental supply.
Coffs Harbour, Port Macquarie and Ballina each have vacancies of 1.5 percent or lower, a clear signal for rising rents.
With one of Australia’s lowest unemployment rates, Dubbo has an incredibly tight 1 percent vacancy rate.
It’s a similar situation for Orange (1.2 percent) where the median house price increased by 38 percent and median rents are up 15 percent over the last 5-years.
Adelaide rarely attracts much attention from property investors and therefore typically avoids rental over-supply. Greater-Adelaide’s 1.0 percent vacancy rate as at June 2020 is very tight, although, once again, the CBD is over-supplied (6.2 percent).
The regional (steel making) city of Whyalla has an incredibly tight 0.6 percent vacancy – it’s little wonder that median rents increased by 9 percent over the last 12-months. Victor Harbour is another regional location with rents already under pressure.
After peaking at 4.3 percent in December 2018, Darwin’s vacancy rate has progressively declined over recent years. When Australia first entered COVID lockdown in March, Darwin had a 2.7 percent vacancy rate and it has subsequently declined further to be 1.8 percent at the end of June.
Right now, 6 out of 8 capital cities and all (bar two) regional towns, Gold Coast and Geelong, have tight real estate supply.
The only thing currently preventing an official declaration of an Australian rental crisis is the sedation affect caused by the coronavirus.
As the nation continues to open up and more employment situations trend back towards normal, Propertyology is forecasting some intense pressure on rents. This is already a very real situation in Canberra, Hobart, Adelaide and many parts of regional Australia.
For property investors, I’ve never seen better across-the-board national conditions in my 25-years of experience. I can’t ever recall such incredibly low vacancy rates and rising rents and we’ve certainly never had interest rates as low this ever before.
It’s likely to be some years before supply catches up. Australia’s pipeline for new residential construction was consistently falling even before COVID, while investor activity (those everyday Aussies who determine the volume of rental supply in the market) has also been low since late-2017.
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