Vacancy rates and rental discounting fall, but no recovery for the rental market yet

Rental discounting has slowed in all cities except Sydney and vacancy rates are falling, but experts warn the tough times for landlords are not over.

New data from Domain has revealed that some of the areas that were hardest hit areas by slashed rent prices are now showing signs of recovery, coming back from a peak in discounting rents that occurred in April.

The proportion of rental listings with a discount shrunk in Melbourne, Brisbane, Hobart, Canberra, Perth, Darwin and Adelaide. Only Sydney recorded a slight increase in its rental discounting, although it’s down from its peak of nearly 30 per cent in April.

The number of properties sitting empty skyrocketed in capital city CBDs and tourist hot spots during the coronavirus lockdown as short-term lets like Airbnb flooded the market.

Despite a small increase in rental discounting in Greater Sydney in June, the CBD and Sydney’s eastern regions areas actually saw a decrease in rental discounting – as did other most of the other CBD areas across the country.

Domain data scientist Nicola Powell said the easing of border restrictions had likely impacted on the market.

“Inner Melbourne, the Sydney CBD and eastern suburbs and even Brisbane – all three of those CBDs hit a peak in discounting in April, they declined in May and they declined again in June,” Dr Powell said. “I think we’re seeing a conversion of some of those properties back to the short-term rental market as we see some restrictions ease.”

Perth, Adelaide and Hobart all saw the proportion of rental listings with a price decrease fall below 12 per cent in June, while rates in Brisbane and Canberra fell below 15 per cent for the first time since February and March respectively.

Darwin’s rate fell to 16.5 per cent from 19 per cent the previous month, while Melbourne’s rate fell slightly for the month to 24.9 per cent. Sydney’s increased from 27.7 per cent in May to 29 per cent in June.

Vacancy rates were down across all capital cities, SQM Research data released on Tuesday showed, and all CBD areas except Brisbane’s CBD had seen vacancy rates decline – again pointing to the effect of Airbnb listings coming off the rental market and again being offered as holiday accommodation, SQM Research director Louis Christopher said.

“What’s interesting out of all this is how much of an impact Airbnb properties are having on the rental market,” he said. “In theory, if you had all Airbnb property owners moving their properties to the long-term leasing market, vacancy rates would be at least another 1 per cent higher.”

He said while vacancy rates had started to fall, they were still comparably high in most capital cities to what was usual, with the exception of Perth where the vacancy rate was now less than half of what it was in June last year – 1.5 per cent.

“For example, before coronavirus hit, Southbank, Docklands and Melbourne CBD had a vacancy rate of about 3 or 4 per cent – which is pretty standard for that area.”

The rates in Southbank and the Melbourne CBD were 16.2 and 8.8 per cent respectively in June – down from 16.8 and 9.3 respectively in May – but still elevated enough to put “downward pressure on rents”, Mr Christopher said.

“There’s still a lot of pain ahead for inner-city landlords – the outer regions are holding up better than the inner regions,” he said.

Rental house prices were either down or flat in all capital cities for the June quarter, according to Domain data.

Mr Christopher and Dr Powell both said the rental market, particularly in the inner cities, would not recover until both state and international borders reopened.

Dr Powell said Melbourne’s second lockdown could put further pressure on its rental market, which, along with Sydney’s, was already seeing a higher rate of discounting than most other capitals due in part to international border closures.

“Those areas are very exposed to overseas migration, they’re exposed to foreign student populations and I think until we see those numbers go back to normal I think we will still favour tenants,” she said.