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Rental vacancy rates signal market change

25 November 2019 Lyall Russell
Hobart

Rental vacancy predictions show strength for Hobart’s property market, but Sydney’s future does not look as bright.

With residential vacancy rates low in some locations across the country, an active rental market is upon us.

The latest research from Propertyology has looked at capital cities and major locations across Australia to pinpoint future property performance.

Many locations had vacancy rates above 3 per cent, which is widely viewed as a balanced marketplace, Propertyology head of research Simon Pressley said.

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“When vacancy rates edge above 3 per cent, rents start to reduce because there is more supply than demand — property prices usually follow suit,” Mr Pressley said.

“Conversely, rents generally start to rise when vacancy rates fall below 2 per cent. This metric is also back-of-the-beer-coaster indication of pressure building within a property market.”

Although many metrics provide insights into the direction of the property market, Mr Pressley believes the rental market is a reliable indicator.

“While a number of factors need to be considered to provide a clearer overall picture, Propertyology believes that current rental trends are showing signs of changing property market cycles in several Australian locations.”

He indicated the markets would be strong in Hobart and Canberra, where vacancy rates are low and have pushed up rental prices.

“Hobart has produced the biggest economic recovery of any Australian city this century. Its labour market has expanded, interstate migration has been strong and there’s still an exciting pipeline of projects to come. Hobart’s construction sector is unable to keep pace with the extra demand for housing.”

Likewise, Canberra has performed well, but as a new supply of housing is completed, it may ease rental pressure.

Brisbane and Melbourne are predicted to remain stable.

“Brisbane’s property supply levels are now supportive of a long-overdue property growth cycle; however, significant price growth will not occur without meaningful, private sector job creation first being produced,” Mr Pressley said.

Likewise, Melbourne’s rental has been balanced for the past four to five years, and it is not showing any sign of rental growth going forward.

“While Melbourne’s economy is still strong, the construction industry became overstimulated during Melbourne’s last boom, so beware the wishful thinkers who are hoping for a sustained bounce to Melbourne’s property market,” he said.

The roads ahead are not looking bright for Sydney, Perth or Darwin where rents are expected to go backwards.

The research connected Sydney’s strong rental demand with overseas migration, a healthy economy and the high cost of home ownership.

“With a sizeable pool of new properties, predominantly apartments, still in Sydney’s construction pipeline and consistently more Sydneysiders choosing to migrate to other parts of Australia, Propertyology forecasts that Sydney’s rental market will remain soft for some time yet,” Mr Pressley said.

Rental vacancy rates signal market change
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