Corelogic has released data today showing that annual rental growth across Australia has increased to 8.9%, which is the fastest pace of growth since the Global Financial Crisis struck Australia in 2008. However, the pace of growth is slowing:
On a quarterly basis, rental growth peaked in the March quarter at 3.2% and has consistently eased to 1.9% in the September quarter. However, the annual rate of growth is still rising, up 8.9% over the year to September.
The easing rate of rental growth can mostly be attributed to a slowdown in house rents where the growth rate has softened from 3.5% in the March quarter to 1.9% in the September quarter. At the same time, growth in unit rents appear to have stabilised around 1.9% quarter-on-quarter, down from a recent peak of 2.5% in the three months to March.
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Throughout the September quarter, we are now seeing unit rents rising at the same speed as house rents across Sydney (2.3%) and unit rents are rising faster than houses in Melbourne (1.3% for units and 1.1% for houses). This is a significant change in rental market trends, where previously the unit precincts, especially inner-city high-rise areas of Melbourne and Sydney, were acting as a drag on rental growth.
However, with Australian dwelling values rocketing by 20.3% in the year to September, rental yields continue to compress:
Gross yields across the combined capitals have fallen to 3.0% in September, with gross yields in Sydney (2.5%) and Melbourne (2.8%) well below the other capitals. Yields across regional Australia are higher at 4.4%, with regional NSW and Victoria the only ‘rest-of-state’ regions with a gross yield below 4.0%.
The surge in rents matches the sharp contraction in rental vacancies, which fell to its lowest levels since March 2011 at just 1.6%, according to SQM Research:
The smaller major capitals are experiencing extreme tightness, whereas Melbourne’s and Sydney’s rental vacancy rates are more elevated following the loss of migrants (international students):
I expect lockdowns to exacerbate these trends, with more people moving from Melbourne and Sydney to the regions and smaller capitals.