In July, national and CBD vacancy rates improved, rental values fell 0.5% in the June quarter

RENTAL VALUES

For the week ending 28 July 2020, the average weekly rent across Australia increased by 3% to $455 for houses and held steady at $367 for units, compared to the week prior.

Across capital cities, Sydney recorded the highest average weekly rent for houses at $638.10 and Canberra recorded the highest weekly rent for units at $473.20. In contrast, Adelaide recorded the lowest weekly rent for houses at $412.40 and for units at $317.80.

Compared to June, the national weekly rent rose by 2.5% for houses and decreased by 0.5% for units. Sydney and Melbourne recorded overall declines in weekly rents while Perth, Adelaide, Darwin and Hobart recorded overall increases.
Year on year, national weekly rents have increased by 3.4% for houses and remained the same for units. Meanwhile, capital city weekly rents have decreased by 1.6% for houses and by 4.3% for units. Further price breakdowns can be found here.

According to CoreLogic’s quarterly rental review, capital city rental values fell 0.7% in the June quarter whereas regional rental values rose 0.2%. Nationally, rental values decreased 0.5% over the quarter, representing the largest quarterly fall in rents since September 2018, with further falls expected.

CoreLogic Head of Research Australia Eliza Owen remarked that the rental market was already relatively weak prior to the decline in values over the June quarter. While growth in rents was building momentum between September 2019 and March 2020, COVID-19 put an immediate halt to any progress.

“Closed international borders created a significant shock to rental demand, as historically the majority of new migrants to Australia have been renters. Furthermore, job losses in sectors such as hospitality, tourism and the arts, which ABS payroll data estimates has been around 20%, have also impacted demand, because households in these sectors are more likely to rent than in other industries,” said Owen.

VACANCY RATES

The national vacancy rate decreased from 2.5% in May to 2.2% in June with 77,132 vacant residential properties Australia-wide. All capital cities recorded a decrease in vacancy rates compared to the month prior, with Darwin recording the largest decline at 0.5%.

Sydney recorded the highest vacancy rate nationwide at 3.8%, an improvement from the 4% recorded in May. In contrast, Hobart and Adelaide recorded the lowest vacancy rates nationwide at 0.9% and 1% respectively.

Year on year, the national vacancy rate is 0.1% lower. Across capital cities, almost all cities recorded a lower vacancy rate compared to the year prior, with the exception of Sydney, Melbourne and Hobart. Further vacancy rate breakdowns can be found here.

CBD vacancy rates saw an improvement in June. Sydney CBD’s vacancy rate decreased from 16.2% in May to 13.8% in June. Meanwhile, Melbourne CBD’s vacancy rate dropped to 8.8%, Melbourne Southbank dropped to 16.2%, Adelaide CBD declined to 7.1% and Perth fell to 5.2%. Conversely, Brisbane CBD’s vacancy rate rose to 14%.

SQM Research Managing Director Louis Christopher said, “We believe the surprise fall in vacancy rates is due to Airbnb property owners giving up on the longer term leasing market and moving back to short term leasing, especially in light of the July school holiday period and the opening of some state borders.”

“Going forward, our expectation is the Australian rental market will remain weak for the duration of 2020 or until such time as the international border reopens and we as a community have past the worst of COVID19.”

CASH RATE AND PREDICTIONS

The RBA kept the cash rate unchanged at 0.25% at the beginning of July in response to the sharp rise in unemployment due to the pandemic. ABS figures show that the unemployment rate rose to 7.1% in May—the highest level in nearly two decades.

RBA Governor Philip Lowe said, “Since March, an unprecedented 800,000 people have lost their jobs, with many others retaining their job only because of the government and other support programs.”

“While total hours worked in Australia continued to decline in May, the decline was considerably smaller than in April and less than previously thought likely. There has also been a pick-up in retail spending in response to the decline in infections and the easing of restrictions in most of the country.”

“Uncertainty about the health situation and the future strength of the economy is making many households and businesses cautious, and this is affecting consumption and investment plans. The pandemic is also prompting many firms to reconsider their business models. As some businesses rehire workers as demand returns, others are restructuring their operations.”

Dr Lowe remarked that “it is likely that fiscal and monetary support will be required for some time” to help the Australian economy through this difficult period.

Source: PropertyMe, Author Silvia Liu on 03 August 2020