Top three Australian cities for rental growth and lowest vacancies

Thursday, 25th October 2018

While media obsesses over price data as the only market measure worth talking about, the forgotten barometer is residential rentals.

Not only does mainstream media misunderstand and misinterpret median price data, but it largely overlooks the fundamental importance of what’s happening in the rental markets of our major cities.

Vacancy rates and rental growth figures are important because they’re often a pointer to future rises in dwelling prices.

Before Sydney got on its growth path with price rises, it had a couple of years of strong growth in rents. Hobart, currently the price growth leader in capital city Australia, also had notable growth in rentals before prices started to rise.

According to the latest SQM Research figures, Hobart still has the lowest vacancy rate among the cities and it’s still delivering significant rental growth alongside the price growth - still rising in double digits, according to some (but not all) research sources).

This is a pattern that, according to the research, is common - rents rise before prices do. This makes patterns with vacancies and rents worth noting.

So I’ve looked at the latest rental data from two key sources, Domain and SQM Research.

The market leader is a toss-up between Canberra and Hobart. This makes sense when you understand that these two cities have stood out for the past couple of years as the places with the tightest rental markets, both with vacancy rates well below 1 percent.

In the national capital, both Domain and SQM have house rents rising between 8 and 9 percent in annual terms, while apartments rents are up 7 percent (Domain) or 5 percent (SQM).

In Hobart, the two research sources agree that rents have risen markedly for both houses and apartments, but the numbers are quite different. Domain has rents up 11 percent for houses and 9 percent for apartments; SQM’s growth figures are 5 percent for houses and 14 percent for units.

So it’s pretty clear-cut. Canberra and Hobart have been the leading cities for low vacancies and strongly rising rentals.

But what is the third-ranked city in those terms? The answer is the city no one (other than me) ever talks about, Adelaide.

Adelaide’s vacancy rate has been hovering around 1 percent, according to recent SQM figures. Some sectors of the Adelaide market, such as the City of Marion, have vacancy rates closer to 0.5 percent.

And recently the SA capital has been producing solid rental growth figures. Domain records annual growth of 4.2 percent for houses and just under 2 percent for apartments, while SQM reports around 3 percent for houses and 3.4 percent for apartments.

Adelaide’s growth seems fairly moderate but, to put it in perspective, the two research sources have Sydney rents stagnating or falling. SQM, for example, has Sydney house rents down 3.6 percent and apartments falling 1.2 percent in annual terms.

In Brisbane, where vacancy rates have been high (although now trending downwards), rents have been fairly stagnant over the past year.

In Darwin, where vacancy rates have been elevated for several years, Domain has house rents down almost 4 percent and SQM records a reduction of close to 6 percent.

Domain records no change in Perth rents for both houses and apartments, although SQM suggests house rents are showing early signs of a return to growth - which would correlate to steadily improving figures on vacancy rates.

Melbourne’s rental data is moderate only, with both sources suggesting rises of 2-3 percent in the past 12 months.

So where do the vacancy/rental trends point us, in terms of predicting future growth in prices. I would suggest the best answers (particularly when considered alongside other evidence) are Adelaide, Canberra and Perth.

Canberra has very low vacancies and strongly rising rents. It also has a strong local economy and rising sales activity. Its price growth, currently solid but moderate, should improve. The top end of the market is already rising.

Adelaide has low vacancies and improving rental growth. It also has an improving local economy and a busy sales market. Price performance, already strong in the million-dollar suburbs, should escalate.

And Perth, where rents and prices have been falling in recent years, is poised to rise. Its vacancies are trending steadily downwards, there’s evidence of rising leasing activity and the first signs of a return to rental growth. As the state economy improves, sales activity is steadily rising - and price growth is already happening in the top end suburbs.

Article courtesy of Terry Ryder - the founder of hotspotting.com.au https://bit.ly/2RV32FR

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