Sydney rental property vacancies soar

23 June 2001
by Robert Harley

Sydney house and apartment rental markets have gone soft.  Landlords are cutting rents, offering rent free periods or even paying the costs of relocation.

Figures from the Real Estate Institute of  NSW tell the story.  In May the vacancy rate in the inner city was up to 4.5 per cent - more than double the 2.1 per cent of a year ago - and vacancies in the outer suburbs hit a long term high of 3.8 per cent.

It might be the chill of winter, or a shift towards buying rather than renting, or an increase in new stock.  Most worrying of all, it could be the long awaited weakening in the rental market that foreshadows the eventual slowing of the city's housing boom.

The downturn is not showing up to a similar degree in other cities.  In Melbourne, property manager Carmichael & Weber in the city's south-east, reports "quite a high vacancy rate" and softness in the lower, $200 to $400 a week, range. Another, Jellis Craig in the inner east, reports a strong 1.5 per cent vacancy rate and increases of 10 to 15 per cent on the reletting of executive properties priced at $800 to $1,500 a week.

In Adelaide, Abel Property Rentals reports a tight market for houses but some softening at the lower end of the apartment market, perhaps caused by the shift to buying in the wake of the strong South Australian response to the first home owners scheme.

Brisbane remains tight.  One near-city property manager, PRD Toowong, has a 1 per cent vacancy rate and is achieving 10 per cent rent increases on reletting.

And Hobart's vacancy rate hit a 10-year low of 1.5 per cent in April.  "Its never been like this before," said L J Hooker Hobart property investment manager, Ms Denise Phillips who is re-letting $150 a week three-bedroom houses at $170 a week.

So what is going on?  Certainly the fall in interest rates, the boosted first home owners scheme and, in NSW, new stamp duty concessions, have turned many would be tenants into buyers.

At the same time the employment outlook for young renters is weakening, particularly in Sydney where the majority of the 1,700 One-Tel layoffs were located. Yet the apartment juggernaut continues to deliver more units.

In Raine & Horne Bondi Junction's extensive Sydney-wide management portfolio, the vacancy rate has blown out to an uncomfortable 5.5 to 6 per cent and the principal, Mr Tony Laing, said the situation was getting worse with rents falling at least 10 per cent since Easter.

Owners need to remain patient.  The chairman of the REINSW's property management chapter, Ms Lyn Tamsett, said many would have to upgrade properties, not to gain more rent but simply to remain competitive.  Others may need to drop rents or make more use of the Internet to maximise leasing interest.

Hocking Stuart's Melbourne office, which has also noticed a softening, is seeking shorter term leases, so the rent can be renegotiated if the market strengthens, as expected, over summer.

But what happens if the weakness continues?

Traditionally, the shift in the residential leasing market is a leading indicator for later shifts in house prices.  In 1986 and again in 1996, a significant tightening in the rental vacancy rate pointed the way to the boom to come in Melbourne and Sydney.

One month's figures can be volatile, but in 2001 home buyers should again take note.