Capital city rents edging lower in Australia

Rents in capital cities in Australia increased slightly by 0.1% in April, but overall rental rates edged lower and have now fallen by 0.2% over the past 12 months.

This takes the average rental rate to $490 a week for houses and $467 a week for units across combined capital cities, according to the data from the latest CoreLogic monthly rental review report.

Five of the eight capital cities saw a modest rise in rents over the past 12 months, including Sydney up 1.4%, Melbourne up 1.7%, Adelaide up 0.5%, Hobart up 1.1% and Canberra up 2.5%.

Perth with a fall of 8.9% and Darwin with a decline of 12.6% both experienced large drops in rent rates and  have collectively pulled the combined capital average lower while in Brisbane rents dropped by 0.6%.

‘We anticipate that the weakness in the rental market will persist over the year and rents will continue to fall over the coming months. The annual change in rental rates continues to be at its slowest pace since before 1996,’ said Research analyst Cameron Kusher.

‘At the same time last year, rental rates increased by 1.7% which indicates a sharp slowdown in rental growth over the past year,’ he pointed out, adding that factors contributing to a slowing in rental growth include falling real wages, excess rental supply in certain areas and lower rates of population growth, all of which have impacted on demand for rental accommodation.

‘With dwelling approvals at recent record highs and construction activity set to peak over the next 24 months, accompanied by many new properties still to settle, we anticipate that the weak rental market conditions will persist with rental growth continuing to slow and, or, fall in most capital cities,’ Kusher explained.

He also pointed out that based on current market conditions, landlords won’t be in a position to lift rental rates and may actually need to reduce rents in order to keep their tenants. ‘We see renters as holding a stronger negotiation position and where they now have the potential to upgrade into higher grades of accommodation for a similar, or lower rents,’ Kusher said.

Canberra is the only capital city where the annual rental change is currently stronger than it was a year ago. Kusher said this highlights the weakness in rental market conditions is being felt across all other capital city markets.

With rental rates increasing in some cities in April, rates in Sydney, Adelaide and Hobart are at record highs. In all remaining cities, rental rates are now below their highs with the declines recorded respectively down 0.1% in Melbourne, 0.8% in Brisbane, 13.7% in Perth, 17.3% in Darwin and 5.4% in Canberra.

The results show that as rental changes outpace home value changes, gross rental yields have trended lower and have hit record lows of 3.3% for houses and 4.2% for units.

‘In our two largest capital cities, we’ve seen rental yields move to record lows of 3.1% for houses and 4% for units in Sydney and in Melbourne, rental yields are at a record low 2.9% for houses and 4% for units,’ said Kusher.

‘With home values continuing to grow and rental markets expected to soften further, don’t be surprised if we see a further compression of gross rental yields over the coming months,’ he added.