Regions tighten as Sydney vacancies hit record high

Regions tighten as Sydney vacancies hit record high
March 4, 2019 Simon Pressley

While Sydney is seemingly setting a new record high vacancy rate each month, large parts of the rest of the state are experiencing falling vacancy rates, rising property prices and increasing rents.

Greater-Sydney ushered in the new year with 25,000 empty dwellings. That’s enough shelter to house an entire city the size of Wagga Wagga or Tamworth, population 60,000 plus.

Since the start of the 2017 calendar year, Sydney vacancy rates have consistently pushed through a new record. According to data from SQM Research, the vacancy rate of Australia’s largest city was at an all-time record high of 3.2 per cent as at the end of January.

Early last year, Propertyology eluded to the possibility of rents falling in Sydney. That has now materialised.

SQM Research have recorded a reduction in Sydney’s median rents over the year ending January 2019 of 4.5 per cent for houses and 2.8 per cent for units.

Sydney’s current rental market is a biproduct of a few years of all-time record high new supply (more than Sydney’s rising population required) and a high proportion of them being added to the Sydney’s rental pool (more than 50 per cent of lending during Sydney’s last property boom was to investors).

It’s not that long ago that the nation observed a barrage from angry Sydney tenants who wanted to blame everyone from property investors, baby boomers, negative gearing, and insufficient housing supply for their inability to get a foot on the property ladder.

Now Sydney has falling rents, surplus housing stock, and a pipeline with plenty more new stock to come.

I anticipate that Sydney’s vacancy rate will follow the same trajectory for a while yet and probably push past 4 per cent.

I wouldn’t at all be surprised if there were 30,000 vacant dwellings across Greater-Sydney by year’s end. That would equate to enough shelter to house a city the size of Coffs Harbour, Australia’s thirtieth largest city.

Meanwhile, Sydney property prices have fallen by circa 15 per cent since their mid-2017 peak.

Across the various sub-regions within Greater-Sydney, vacancy rates do vary considerably. The Hills District is the highest with a vacancy rate of 5.8 per cent. Other high regions include Upper North Shorth (4.8 per cent), Lower North Shore (3.9 per cent), Parramatta (3.7 per cent), Western Sydney (3.6 per cent), and Sydney CBD (3.5 per cent).

At suburb level, the highest include North Sydney (5.3 per cent), Chatswood (5.1 per cent), and Camden (4.9 per cent). Canterbury and Botany Bay both have vacancy rates of 4.6 per cent, Liverpool (4.2 per cent), Ryde (4.1 per cent) and Blacktown (4 per cent). Rents are likely to continue to soften!

Throughout most of regional New South Wales, where developers have not flooded the market with new stock, it’s a completely different story. In most cases, rents have been under pressure to rise and vacancy rates are likely to tighten even further.

Vacancy rates are currently trending lower in Wagga Wagga (2.5 per cent) and Tamworth (1.8), while Albury and Armidale both sit at a tight 1.6 per cent and falling.

In my experience, the ability for landlords to raise rents increases when the cumulative vacancy rate of surrounding suburbs is below 2 per cent.

With unemployment rates consistently below the national average, the rental market is even tighter in Dubbo (1.4 per cent) and Orange (1.3 per cent).

Coffs Harbour’s January vacancy rate of 0.9 per cent in one of the lowest in Australia.

The vacancy rate trend is upward in Wollongong (2.6 per cent) and Gosford (1.4 per cent) while the trend is steady in Port Macquarie (1.8 per cent).

At a national level, SQM Research data says there were 72,574 vacant residential dwellings as at the end of January 2019.

This cool chart by Pete Wargent tells some interesting stories about the other capital cities.

Melbourne, Adelaide, Canberra and Hobart currently have vacancy rates below 2 per cent.

In fact, Hobart’s all-time Australian capital city record low vacancy rate is such that the rent on a standard house has increased by $70 per week over the last 12 to 18 months.

While Perth’s vacancy rate of 4.4 per cent appears high, the trend has been a sharp reduction over the last couple of years.

Brisbane’s rental market has also balanced out. Some landlords are now seeing rents rise for the first time in several years.

The vacancy trend in Melbourne is rising. This is not surprising given, like Sydney, Melbourne has been through a few years of record residential construction and high investor activity adding large volumes to Melbourne’s rental stock.

 

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