Rents under pressure – Louis Christopher

Rents under pressure – Louis Christopher

The national residential vacancy rate has slipped to 2.1% with almost 70,000 properties vacant nationally. Asking rents have been pressured and are rising especially in Hobart, Canberra and Melbourne.  Louis Christopher from SQM Research has the full story.

Transcript:

Kevin:  If you want to know what’s happening with the market, particularly investor stock, I love to pick up Louis Christopher’s report from SQM Research that talks about vacancy rates around Australia. It gives a really interesting insight. Louis joins me to talk about it.

Good day, Louis. Good to have you on the show again.

Louis:  Good day, Kevin. Good to be here again.

Kevin:  Thanks, mate. The latest report talks about vacancy rates: some up, some down. What do you read into this? Let’s go cap city by cap city.

Louis:  Okay. The national result was that we recorded a rental vacancy rate of 2.1% in April. So, on our numbers, 67,800 residential properties were vacant in April. That compares to March where the rate was 2.1%. So, effectively, it was a steady market in April. Looking at where we were this time last year, the national vacancy rate was 2.4%.

Now, in all this, Kevin, as you’ve said, some cities have gone up in vacancies, some have gone down. When I look at Brisbane, we recorded a vacancy rate for 3%, which sounds elevated. Now, that was down from 3.2% in March and down from 3.7% in April last year.

Kevin:  Let’s bring some perspective into this. What would you call a balanced market? Is it around that 2% or 3%?

Louis:  Yes, that is correct. When it’s below 2%, generally speaking, it’s a landlord’s market. When it’s 3% and above, it’s a tenant’s market. But in all this, what is important to note is the relative movement. For example, we saw this some years back up in Gladstone, where Gladstone once upon a time had a vacancy rate of 9%. That vacancy rate has now come back to about 5%.

The rental market has actually tightened up. It’s still relatively loose, there’s plenty of stock available, but given the fact that it has tightened, that has actually created a little bit of a rise in rents. So, it’s a relative movement that you also need to consider.

Kevin:  What’s happening in Sydney and Melbourne?

Louis:  Vacancy rate in Sydney at the moment is 2.3%, which is steady month on month but was up compared to April last year when the vacancy rate was 1.7%. Melbourne on the other hand has now quite a tight vacancy rate of just 1.3%. This time last year, it was at 1.5%.

So, Melbourne is very tight even while we’ve had an increase in dwelling completions – a rapid increase in dwelling completions, might I add? It seems as though the very accelerated population growth rate has absorbed a lot of the surplus stock.

Kevin:  What about the difference between houses and units, Louis?

Louis:  We don’t break it down, Kevin, because what we see regarding units is you can get a misleading read on units at times, so we generally publish a combined houses and units vacancy rate. But what I like to look at, though, is areas where we know there are lots of units. For example, Brisbane CBD, where you won’t find too many freestanding houses there.

So, we have a vacancy rate now in the Brisbane CBD of about 5%. That’s actually been trending down as well of late, which I find interesting. And it may well suggest that the worst is behind us regarding Brisbane’s apartment glut, but still very early days.

Kevin:  Yes. When looking at the figures, what do you read into it cap city by cap city in terms of what’s likely to happen with rental returns?

Louis:  It is very much a mixed market overall. We just went through some of the cap cities. Perth for example is recording a 4.1% vacancy rate. That said, though, it’s coming down. There’s still surplus stock in Perth due to the mining downturn, but our view is that we were at the bottom at Perth. We’re already past the bottom of Perth now and the rents will likely start to rise again, assuming that the uptick in commodity prices continues.

It’s the same issue with Brisbane where everybody is aware of the over-supply, and we’ve just talked about the fact that maybe we’ve passed the worst of it once again in Brisbane.

Darwin, on the other hand, we have a vacancy rate of 3.3%. We don’t think the worst is over yet. We had to actually recently revise our forecast for Darwin downwards because we’re still seeing a lot of surplus stock. I think Darwin has not quite bottomed out yet.

And then when we look at Sydney, I think for now, vacancies are likely to continue to increase. So, our outlook for the rental market in Sydney is pretty flat at this point in time.

Kevin:  Always a great reports at Louis’ website too, SQMResearch.com.au. And if you want to find out about distressed properties as well, some reports there that you might want to look into.

Louis Christopher has been my guest. Louis, thanks again for your time.

Louis:  Good to be here, Kevin.

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Kevin Turner
kevin@realestatetalk.com.au
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