Rental trends an important barometer for property market strength: Hotspotting's Terry Ryder
EXPERT OBSERVER
Rental trends are an important barometer of our major markets largely overlooked by mainstream media.
Media regards changes in median prices and auction clearance rates in the big cities as the measures worth considering, but at Hotspotting we think movements in rents are equally important. They reveal a lot about the state of individual markets and they can serve as a precursor to what’s likely to happen with prices.
History shows that an uplift in prices is often preceded by tight vacancies and strong rises in rentals. This occurred in Sydney in 2011 and 2012, ahead of the start of the price boom in 2013.
Hobart, which has had a mini-boom in the past two years, first experienced a sharp decrease in residential vacancies and significant increases in rentals.
Hobart still has the tightest vacancies in capital city Australia (well under 1%) and it continues to lead on rent increases. We have analysed new data from the two best sources on rental statistics, SQM Research and Domain, and both record strong annual rises for house rents (7.2% SQM and 9.8% Domain) in Hobart and even bigger increases for unit rents (11.6% and 12.9%).
Perth is another standout. A year ago the vacancy rate for the WA capital was 4% but it has reduced steadily over the past 12 months and is now below 3%. Rents have responded, with houses up 4.5% (SQM) or 5.7% (Domain), and units up 4.9% (SQM) and 3.3% (Domain).
If history repeats, this dramatic improvement in the rental market will be followed by uplift in prices, for the first time in five years (the latest SQM data suggests price trends are starting to improve in Perth).
Adelaide too is producing solid rental growth. Both sources have house rents up about 2.6% in annual terms, and apartment rents rising around 3.3%. Adelaide vacancies are hovering around 1%.
Brisbane, where vacancies have recently dropped below the 3% benchmark after several years of over-supply in apartment markets, is now producing moderate rental growth for both houses and apartments.
Both sources agree that Canberra is producing solid growth in rents for apartments, up more than 4%, but Domain records no growth for house rents, while SQM says Canberra house rents have dropped about 2% in the past year. Canberra vacancies are trending higher but remain tight at 1.2%, according to SQM.
Melbourne, where vacancies are generally low, has delivered minor growth in apartment rents, while house rents are largely unchanged.
The two cities with the highest vacancies, Sydney and Darwin, are the only state and territory capitals where rents are significantly down.
In Sydney, where vacancies are trending higher, houses rents are down about 5% in annual terms, while apartment rents have fallen around 4%.
Darwin is showing signs of recovery with rents for houses, with vacancies better in the past year. But apartment rents have dropped 5%, according to both research sources.
Overall, the situation is positive for vacancies and for rents. Sydney is the notable exception.
The improvement in the rental situation for Perth, Adelaide and Brisbane suggests price growth is likely in the near future - especially when considered alongside other factors.
Terry Ryder is the founder of hotspotting.com.au
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