Low vacancy rates: what they mean for investors and tenants

After a difficult couple of years, landlords should have a spring in their step – the rental market is undeniably swinging in their favour, with national vacancy rates being at the lowest point on record.

According to recent data from Domain, the national vacancy rate is down from 2% 12 months ago to 1.1% as of February 2022, which is the lowest it has been since Domain began recording data in 2017. It’s a further indicator of a downward trend that has vacant rental listings dropping each month across all of Australia’s capital cities.

Although this is undoubtedly good news for landlords, it’s not especially great news for renters, as the opening of international borders and an expected influx of immigrants and foreign students, especially in CBDs and near educational institutions, is expected to create a demand that the rental market will struggle to meet. And that means rents are sure to rise.

This demand is expected to be biggest in Sydney and Melbourne, both of which have seen the biggest vacancy drops in February 2022 (Sydney ’ s rental market sits at 1.7%, its lowest point since November 2017, and Melbourne’s is 2.1%, which is its lowest since March 2020).

Across Australia, capital cities have seen a downward trajectory in the vacancy rate of rental properties over the 12-month period from February 2021 to February 2022.

Sydney has seen a 0.9% drop, while Melbourne has seen a much larger drop of 2.3%, although the country’s second-most populous city is currently the most supplied capital city in Australia, with its vacancy rate of 2.1%.

The nation’s capital has also hit an all-time low with Canberra seeing a drop to 0.5% (down 0.3% compared to February 2021), with Perth also sitting at 0.5% – a historic low for the Western Australia capital, and a figure that may tighten further now that WA has finally opened its borders to the rest of the country.

Those thinking of relocating to the Apple Isle may have reason to pause, given Hobart now has the lowest vacancy rate in all of Australia, with a tiny 0.2% (down 0.3% compared to the same period last year). It’s also the lowest of any capital city since Domain began recording data in 2017.

Adelaide isn’t far behind Hobart at 0.3%, while Darwin has seen a smaller decrease from 0.7% to 0.6%.

Nicola Powell, Domain’s Chief of Research and Economics, believes a rental crisis in Australia is now very possible this year, due to the spiralling vacancy rates. And she thinks the problem may be further exacerbated due to some landlords converting investment properties back to short-term holiday rentals now that people are allowed to travel again.

This demand has been reflected house rentals, which increased across the board around Australia between February 2021 and February 2022. The sharpest increase was in Brisbane (a spike of 11.3%), and the lowest in Melbourne (4.6%).

As for other capital cities, Hobart rose 10.2%, Canberra 9.7%, Darwin 9.1%, Adelaide 8.9%, Sydney 8.7% and Perth 7.8%.

In regards to unit rents, Darwin saw the biggest leap with 8.7%, with Hobart close behind at 8.4% and Sydney at 8%.

With demand for rental properties increasing, expect these numbers to continue climbing throughout 2022.

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