Regional Rent Values Offset Capital City Declines

Rental values in regional markets are proving resilient, offsetting declines in capital city rents, according to the latest Corelogic figures.

The decline in national rental values eased over the September quarter, down 0.2 per cent from 0.5 per cent over the prior quarter.

Regional dwelling rental rates rose by 1.2 per cent over the third quarter, after a lower 0.2 per cent rise over the June quarter.

Capital city rental markets recorded a 0.7 per cent drop in rents, with Melbourne and Sydney recording the largest declines in rents over the quarter.

Both cities' rental markets have been heavily affected due to their "service economies", with people working in industries hardest-hit by Covid-19 more likely to rent.

Melbourne saw an acceleration in the rate of rental decline of 2 per cent over the quarter from a 1 per cent decline over the June quarter, as the city battled with a second breakout of the virus resulting in a prolonged lockdown starting in August.

Change in rents

^{_{^ Source: Corelogic, quarterly rental report}}

Sydney’s rental values saw a further reduction over the three months to September, down 1.5 per cent, bumping the city from the most expensive capital city to rent to second most expensive dwelling market behind Canberra.

Hobart’s high exposure to accommodation, food and recreation services, all sectors that have suffered a high rate of job losses, affected rent prices, dropping 2 per cent across the quarter.

Four of the eight cities recorded a rise in rental values over the quarter, after the June quarter saw the market react to the imposed Covid-19 restrictions by recording relatively weak or declining rental growth across all cities.

The largest rise in quarterly rents were recorded across cities that have been largely isolated from virus outbreaks and less impacted by restrictions with Darwin up 2.5 per cent and Perth rental values lifting by 2.2 per cent.

Adelaide and Brisbane both recorded a rise in rental rates over the latest quarter, up by 0.6 per cent and 0.3 per cent.

Corelogic head of research Tim Lawless said the divergence between rental rates for houses and for units had continued to widen over the third quarter, with unit rents deteriorating much faster than houses.

Across the country, unit rental rates were down 1.9 per cent against a 0.5 per cent rise in house rents.

Unit rents across Melbourne and Sydney dropped significantly by 3.6 per cent and 3 per cent respectively.

“The weakest rental conditions are emanating from the inner-city precincts where both a supply and demand shock are having a negative impact on rental rates,” Lawless said.

“These precincts have recorded a surge in new unit supply over recent years, while more recently demand has fallen sharply due to stalled migration and weaker labour market conditions across industries where workers are more likely to rent.”

Regional markets, however, have continued to deliver a more resilient rental environment.

Similarly to the combined capital city trend, regional house rent values performed better than units, rising by 1.2 per cent, while units increased by a lower 0.8 per cent.

Gross rental yields currently sit at 3.77 per cent nationally, rising by four basis points when compared to the previous quarter,

Rental yields were higher over the quarter in Sydney, Melbourne, Brisbane, Perth and Darwin, but declined in the rest of the capital city markets.

Gross rental yields across the combined regional markets came in at 4.93 per cent in September, unchanged from the previous quarter, however this was lower than the 5.1 per cent a year earlier.

“Although rental yields are down slightly on last year’s levels, mortgage rates have reduced by a larger amount,” Lawless said.

“Investor loans are generally attracting a mortgage rate around 2.9 per cent compared with a gross yield across most capital cities that is above 4 per cent for houses and 5 per cent for units, implying fewer investors would be relying on a negative gearing strategy.”