Queensland’s Tightening and Softening Property Markets

Queensland’s Tightening and Softening Property Markets
April 23, 2019 Simon Pressley

There are plenty of handy metrics that can help to spotlight property markets with potential. In fact, Propertyology believe a combination of more than 40 factors across supply, demand and sentiment are key to picking the very best options in property Australia-wide.

With our primary focus for this blog being vacancy rates, let’s hone in on Queensland.

With the exception of a couple of central Queensland locations which had a couple of strong years driven by the mining boom several years ago, property markets across the entire state of Queensland have been underwhelming since way back in 2007.

And, while there was Noosa was the only Queensland location that did anything to write home about during 2018, there are several current metrics which point towards increasing pressure on Queensland real estate.

Vacancy rate ‘rule-of-thumb’

Before I launch into the numbers highlighting Queensland’s excellent prospects, let’s gain a basic understanding of how to interpret vacancy rates.

A vacancy rate refers to the percentage of rental housing stock in a given location that currently sits empty in anticipation of a tenant.

If the vacancy rate is low, there’s less available vacant stock for a given number of potential tenants. This increased scarcity bodes well for landlords who can probably look forward to increased rents.

A sustained period of tight vacancy rates might create motivation for some tenants to become home owners while the increased rents often attract more investors. Either way, the increased buyer activity may put pressure on property values.

Conversely, if the vacancy rate is rising, the amount of available vacant stock is increasing for those looking to rent. This increased choice puts downward pressure on rents and could see property prices soften.

The ‘rule of thumb’ on vacancy rates:

  • Above 3 per cent – Soft rental market, lack of competition often requires landlords to reduce rents to attract tenants,
  • Between 2 and 3 per cent – Rental market equilibrium,
  • Below 2 per cent – Tight rental market, limited supply puts landlords in a position to seek rental increases.

The other important consideration involves tracking the trend of vacancy rate movements. If rates are in an upswing, then rental markets are softening. If rates are dropping, markets are tightening.

Trends are important because while a vacancy rate in a particular market might be at, say, 3.8 per cent, if it’s been progressively falling from a high of 5.5 per cent, this could indicate a location worth further scrutiny.

With this ‘Vacancy Rate 101’ knowledge on board, let’s have a look at locations across Queensland.

Tightening markets

Here’s where real estate is in tight supply in Queensland at the moment:

  • Toowoomba: 2.2 per cent, down from 3 per cent just two years ago.
  • Sunshine Coast: 1.1 per cent
  • Bundaberg: 1.5 per cent, half the November 2015 figure.
  • Hervey Bay: 1.8 per cent
  • Gladstone: 3.2 per cent
  • Rockhampton: 2.3 per cent
  • Mackay: 1.9 per cent. The economy has really turned around in Mackay. Vacancies were at 7 per cent in mid-2015. There’s now pressure on rents, while median house prices also increased 4.5 per cent during 2018.
  • Emerald: 2.3 per cent. Recovering from a peak of 10 per cent in late-2014.
  • Roma: 3.2 per cent. This is particularly good given Roma vacancy rates were recently well in to double-digit figures. If ever there were an example of the trend telling a good-news story, Roma is it.

  • Cairns: 1.4 per cent. Incredibly, this number looks set to tighten further given that a local skilled-labour crisis and a requirement to fill several major projects with workers is attracting new residents.
  • Townsville: 1.2 per cent
  • Mount Isa: 2 per cent, down from 4 per cent just two years ago. Mount Isa services the Gulf Country in north-west Queensland which is one of the most productive mineral deposits in the world. World demand for mining commodities has increased significantly over the last few years and a new mining cycle is underway which is creating a buzz for this iconic regional centre.

Related article: How the Asian century will (again) drive property prices

Brisbane

The strength (or lack thereof) of the rental market of a big capital city can’t be adequately expressed by a single vacancy rate. Results are often mixed across the city.

Greater-Brisbane’s northern municipality of Moreton Bay has seen a general decline in vacancy rates, from 3 per cent to 1.6 per cent over the last 12 months. North Lakes is now at 2 per cent.

Connecting metro-Brisbane to Gold Coast, Logan currently has a 3.6 per cent vacancy rate. This is isn’t alarming, but it is a touch high and has been that way for the last two years.

Out in the west, Ipswich is steady at 2.5 per cent.

Related article: Should investors turn switch on Ipswich?

Most of Brisbane’s middle-ring suburbs have seen their vacancy rates drop by circa two per cent since this time last year. For example, Chermside is now 2.2 per cent (it was 4 per cent this time last year), Mount Gravatt is currently at 2.5 per cent, while Indooroopilly is at 3.1 per cent and Carindale 2.1 per cent.

For several years, Brisbane’s inner-city property markets were infamous for their high vacancy rates and softening rents. Much of the over-supply was absorbed over the last 12 to 18 months.

In late-2016, vacancy rates peaked at more than seven per cent in the inner-northern suburbs of Newstead and Bowen Hills, but they’ve dropped to 4.1 per cent.

The inner-south suburbs of West End and South Brisbane, which have been swamped with new apartments, saw vacancy rates exceed eight per cent in late-2017, but today they’re down to 3.3 per cent. This should certainly boost the confidence of investors who bought during the peak of the construction cycle.

Softening markets

While these results should be putting a smile on the face of Queensland investors, there are a couple of locations that have shown recent signs of softening a bit.

Gold Coast: 1.7 per cent. Yes, this looks like a tight result, but the trend throughout 2018 was rising. A lot of extra housing supply came onto the rental market once accommodation from the Commonwealth Games athlete’s village hit the market last year. There’s also a sizeable apartment building approval pipeline underway on the Gold Coast, so don’t expect scarcity to pick up the slack anytime soon.

Scenic Rim: 2.6 per cent. Again, not terribly frightening, but it is an increase on last year’s results.

Vacancy rates are a handy litmus test of market health.

Unlike locations such as Sydney and Darwin, it’s clear that housing in large parts of Queensland is tightening.

There’s plenty to feel good about in Queensland.

That said, this is just an analysis of one metric. It’s a small (albeit important) piece of a very large puzzle!

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