Rental vacancy rates record highest monthly jump in over a decade: SQM

The number of empty properties in the CBDs of Australia’s three biggest cities has blown out, with new figures recording the largest monthly increase of the national vacancy rate in more than a decade.

Australia’s rental market has been flooded with vacant properties as part of the COVID-19 pandemic, with new data from SQM Research revealing more than 88,000 homes were left empty last month.

“It’s an outright tenants’ market,” said SQM Research managing director Louis Christopher. “Rents have been falling and they’re likely to continue to fall for the foreseeable future. It is happy days for tenants and a bit of disastrous scenario for landlords.”

Holiday hotspots and CBD locations have been hardest hit.

The vacancy rate in the Sydney CBD more than doubled from 5.7 per cent in March to 13.8 per cent in April – a record high on the SQM series – with the Brisbane CBD close behind with an increase from 5.7 to 11.3 per cent.

Melbourne’s CBD fared better with the vacancy rate increasing 2.6 percentage points to 7.6 per cent, however in Southbank the vacancy rate jumped from 5 per cent to a whopping 13 per cent.

“The blowout in rental vacancy rates for the major CBDs suggests a mass exodus of tenants occurred over the course of March and April,” Mr Christopher said.

He added there had also been significant loss in employment in our CBDs, plus a dropoff in international students.

Vacancy rates also jumped in holiday locations such as Surfers Paradise and Noosa, where rates more than doubled to 8.5 and 6.8 per cent respectively.

However, Mr Christopher expected the surge in vacant properties in these regions would be shorter lived, with a boost in domestic tourism likely when state borders reopened.

But he expected the national vacancy rate to remain high until international borders reopened and warned it could push higher still, as new apartment supply hit the market at a time of reduced migration and local demand as households consolidated due to economic uncertainty.

“We’re completing 170,000 dwellings this year, whereas real demand is going to be for somewhere along the lines of 90,000 to 100,000 properties,” he said.

The increase in available properties is already putting downward pressure on rents, with the SQM figures showing capital city asking rents dropping 1.3 per cent for houses but remaining stable for units for the week ending May 12, 2020.

Michael Lowdon of Ray White Residential Sydney CBD said the inner-city market had to deal with the double whammy of tenants – many of whom worked in hospitality and tourism – breaking leases because they could no longer afford the rent, and a sharp rise in short-term holiday rentals being leased long-term. Then there were the new developments adding more stock to the market.

Mr Lowdon said asking prices for advertised properties had typically dropped by about 5 to 10 per cent, but noted some competitors had cut rents by up to 20 per cent, depending on the individual circumstances of landlords. He added about a quarter of existing tenants had sought rent reductions or holidays in recent months.

Real Estate Institute of Victoria president Leah Calnan said inner Melbourne had seen a spike in tenants giving notice in recent months, but felt the market was starting to settle, as many negotiations had taken place in recent weeks, and some tenants had already been able to revert to market rents with the help of JobKeeper support payments.

“I wouldn’t expect [the city’s vacancy rate] to keep climbing,” Ms Calnan said. However, she said areas popular with international students and hospitality workers, such as the CBD, South Yarra and Southbank, would continue to be challenged.

The national vacancy rate jumped to 2.6 per cent in April, up from 2 per cent in March and 2.3 per cent the same time last year, with Sydney, Melbourne and Brisbane seeing the biggest increase in vacant properties.

April saw Sydney and Melbourne record their highest vacancy rate in at least three years, according to Domain data released last week, which reported a marginally lower national vacancy rate of 2.5 per cent.

The latest SQM figures reported that Sydney’s rate jumped a full percentage point to 3.9 per cent – the largest monthly increase since the series began in 2005. Melbourne’s rate climbed from 1.9 to 2.8 per cent,  while Brisbane’s rate increased from 2.1 to 2.8 per cent.

Darwin was the only capital city which recorded a decline, with its vacancy rate falling 0.1 percentage points to 2.6 per cent.