Rents Trend Lower Through June
According to CoreLogic, rental rates have continued to trend lower through June, with weaker conditions across the unit sector.
Since March, capital city house rents have dropped by only 0.2% while over the same period unit rents are down a more substantial 1.8%. Hobart stands out as recording the largest decreases, with rents for houses down 2.0% and units down 3.7% since March.
The weakness across the Hobart rental market comes after a period of rapid rental appreciation. The past five years have seen a 31% lift in Hobart rental rates; by far the largest increase of any capital city. Anecdotally, a significant contribution to the previous tightening in Hobart rental conditions was the transition of permanent rentals to short-term and casual rentals such as Airbnb. More recently it seems this trend has reversed, adding to rental supply at a time of lower demand.
Perth and Adelaide are showing the strongest rental conditions amongst the capital cities. These cities have also generally seen lower levels of investor participation and less ‘investment grade’ construction over recent years, which has kept rental supply reasonably tight.
With rents slipping more than home values across some regions, rental yields are under some downwards pressure. Sydney gross dwelling yields fell to a record low in June of 2.92% and Melbourne gross yields are only thirteen basis points off their record lows at 3.2%. The remaining capital cities are all showing a stronger gross rental yield profile, with yields typically above 4%.
Conditions are highly fragmented, with the weakest conditions centred around inner-city apartment markets - inner Melbourne and Sydney vacancies have risen by more than 40%. Foreign students simply haven’t arrived, domestic students are studying from home and overseas migration has temporarily stalled. Compounding weak rental demand is the fact that the hardest hit industry sectors for job losses and under-employment are those that are typically aligned with renters rather than home owners.
Monthly change in capital city home values
|Sydney||▼ 0.8%||▲ 13.3%|
|Melbourne||▼ 1.1%||▲ 10.2%|
|Brisbane||▼ 0.4%||▲ 4.4%|
|Adelaide||▼ 0.2%||▲ 2.0%|
|Perth||▼ 1.1%||▼ 2.5%|
|Hobart||▲ 0.3%||▲ 6.4%|
|Darwin||▲ 0.3%||▼ 1.5%|
|Canberra||▲ 0.1%||▲ 6.3%|
|National||▼ 0.7%||▲ 7.8%|
Gross Rental Yields