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Is the Inner City Apartment Rental Market Vacancy Rate a Concern for Investors?

Across Perth there are currently 5000 properties on the rental market which represents a 4% vacancy rate.  This is a 56% increase in the properties to rent since this time last year.  This increase in supply has resulted in rents dropping over the last 9 months.  We are experiencing a very different rental market to the tight market of 2012 when demand for inner city apartments outstripped supply and the vacancy rates were as low as 1.7%.  

Over the last 12 months rents have slid 12.3% on houses and 8.1% for units. The median rent for an apartment is now $440pw.  The latest research from SQM Research suggests the vacancy rate in the inner city of 5.6%.  REIWA suggests a vacancy rate of 4.1% across the metropolitan area.

Why have rents been easing since the start of 2013?
This can be attributed to:
•    the downturn in the mining sector;
•    the slowing of population growth; and
•    an increase in home buyer activity where low interest rates have given home buyers enough incentive to cease renting and buy.  The fully furnished apartment is being over looked as most of the interest is coming from local residents as opposed to expats and corporates.

In the inner city we are noticing rents dropping back significantly as landlords compete for tenants.  We have had reports of the rent coming down $150 - $200 per week in the city in order to meet the market.  Tenants are far more price sensitive as supply is outstripping demand.

Although rents have fallen significantly from the highs of 2013 I would suggest the rents that were being achieved were not sustainable. According to RP Data the yield on units as of Feb 14 was
•    Perth - 4.7%
•    Sydney - 4.7%
•    Melbourne - 4.2%
Perth data compares well with the data from Melbourne and Sydney.
 
It is good news for those entering the rental market.  With more new developments coming to the market in the CBD we see inner city living becoming more affordable for those choosing to rent, whilst investors will have to accept a lower return for the time being.

Can we help you buy an apartment?   Please contact us. - Rob Walker

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