CBDs, Holiday Spots See Largest Fall in Rents

Holiday spots and CBDs have been hardest hit by a blow-out in rental vacancy rates sparked by a “mass exodus” of tenants in March and April.

National residential rental vacancy rates surged from 2 per cent in March to 2.6 per cent in April, with the total number of vacancies Australia-wide now at 88,668, SQM research has shown.

Among the largest rises are the capital city CBD locations, particularly in Sydney, where the vacancy rate has hit a record-high 13.8 per cent.

SQM Research managing director Louis Christopher said the blow-out in rental vacancy rates for the major CBDs suggests a “mass exodus” of tenants occurred over the course of March and April.

“This is one of the largest one-month rises ever recorded on our vacancy rates series," Christopher said.

“It might be attributed to the significant loss in employment in our CBDs plus the drop-off in international students [due to Covid-19 travel restrictions].”

Melbourne saw a significant surge in rental vacancies of 13 per cent in Southbank and vacancy rates in the city's CBD up to 7.6 per cent.

Queensland holiday spots have also suffered, with Surfers Paradise recording a vacancy rate of 8.5 per cent and Noosa blowing out to 6.8 per cent.

Suburban areas fared better, although rises have been recorded for most localities around the country, with the exception of Darwin which recorded a 0.1 per cent decline.

Indicating the surge in vacancy rates is beyond seasonal rises, the year-on-year comparison shows the national rental vacancy rate in April 2019 was 2.3 per cent compared to 2.6 per cent recorded for April 2020.

Only Perth and Darwin recorded lower vacancy rates compared to this time last year.

Vacancy rates: April 2019, April 2020

Source: SQM Research

Capital city asking rents decreased throughout the month from
1.3 per cent for houses but remained stable for units for the week ending 12 May, with asking rents of $537 per week for houses and $428 per week for units.

National combined rents are now recording a 12-month decrease of 3.1 per cent.

Sydney, Melbourne and Perth recorded decreases in asking rents for both houses and units over the month, while Brisbane, Canberra and Hobart recorded decreases in house asking rents but minor increases in unit asking rents.

Darwin appears to be the only city that has remained relatively stable for the month, with increases recorded in house rents of
2.7 per cent but declines in unit rents of 2 per cent.

Adelaide bucked the trend, recording rent increases for both houses and units of 0.1 per cent and 1.4 per cent respectively.

With Australian borders remaining closed to tourists, migrants and international students, and a spike in short-term accommodation being advertised for long-term leasing due to government restrictions on short-term rental arrangements, Christopher said the duration of high rental vacancies could create broader problems down the track.

“If high rental vacancies are sustained throughout the course of the year, then we can expect far deeper falls in rents which will be good news for tenants—but a disaster for landlords.

“There will also be economic consequences with further sharp falls in building approvals likely; thereby risking a major depression in our residential construction sector as well as the rather obvious risks for housing prices.”

The sharp rise in vacancy rates is in line with predictions by Corelogic's Eliza Owen, who said while Covid-19 is having varied impacts on residential property, arguably the biggest could be in the rental space given that the Australian rental market was “already weak”.

“The impact on different regions will vary, depending on how exposed markets are to tourism, migration and job losses. Several datasets point to inner Sydney and Melbourne being the most affected,” Owen said.