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Unit sector set to regain strength

02 February 2021 Bianca Dabu
Unit sector set to regain strength

While unit rents are still declining across most capital city markets, positive signs have sprouted for landlords.

COVID-19 has changed the rental market dynamic significantly in 2020, transferring demand towards detached and lower-density housing markets as a result of the disruption in overseas migration and the shift in working conditions. With more people working from home, larger housing options have become more in demand.

Over the past year, unit rents in Melbourne and Sydney are down by 7.8 per cent and 5.6 per cent, respectively.

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However, CoreLogic found that there are some early signs pointing to the unit sector’s weakness leveling out, if not turning around, with the rate of decline appearing to ease across major capital city markets.

In fact, Sydney unit rents posted the first month-on-month rise in January (+0.8 of a percentage point) since March last year, while Melbourne unit rents held firm over the month.

Unit rents across Brisbane and Hobart have also been on a downwards trajectory through COVID, and have also shown a trend of rising rents over the recent months as conditions start to stabilise.

For 2020, Darwin and Perth stood out with the largest annual rental increases for both houses and units at 12.4 per cent and 11.7 per cent for houses and 10.0 per cent and 8.7 per cent for units, respectively.

CoreLogic stated that “the strong rental conditions in these regions come after a long run of falling rents and low levels of investment activity”.

“The result is extremely tight rental supply at a time of rising demand, while affordability is relatively healthy due to the sustained fall in rents between 2013 and 2018,” the report highlighted.

Even though both Perth and Darwin did see “significant” rises over 2020, it was pointed out that the median rental rate in Perth is still $90/week lower than the 2013 peak, and Darwin rents remain $145/week below their record high in 2014.

With housing values generally outperforming rents, gross rental yields have been under some downwards pressure, falling annually by 9 basis points in combined capital cities and by 19 basis points in the combined regional areas.

However, a few broad regions have bucked the trend of yield compressions: Perth, for one, has seen gross yield up 11 basis points to reach 4.4 per cent, while Darwin yields are 16 basis points higher at 6.0 per cent.

Moving forward

In 2021, experts believe that the recovery across rental markets will be largely supported by the improvement in the jobs market as well as overall affordability.

According to CoreLogic, part-time job numbers have now fully returned to pre-COVID levels and more businesses are looking into rolling out a return-to-work program, thus supporting the recovery of demand across inner-city rental accommodation.

Further, the lower rental rates in the inner-city areas are attracting more people back through improved rental affordability.

With the headwinds dissipating and most markets stabilising, the most significant risk to housing markets remains to be further outbreaks of the virus, CoreLogic said.

The report concluded: “The recent series of outbreaks, and subsequent border closures and restrictions through late December and January, had an immediate negative impact on consumer sentiment.

“As we know from the Melbourne example, a sustained period of restrictions focused on containing the virus would likely see economic activity, including home buying and selling, temporarily stall. This could result in renewed downwards pressure on housing prices.”

Unit sector set to regain strength
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