Oversupply, pandemic hit Sydney, Melbourne apartment rents

Inner-city apartment rents have crashed during the COVID-19 pandemic.

Inner-city apartment rents have crashed during the COVID-19 pandemic. Photo: Getty

Record-low interest rates are fuelling a housing boom across the country, but one part of the market is lagging behind.

Weekly rents for inner-city apartments in Sydney and Melbourne are well below where they were this time last year, according to data from CoreLogic and SQM Research.

Australia’s closed international border has left a hole in the inner-city rental market that is usually filled by international students.

And the transition to working from home has also encouraged city dwellers to ditch small apartments for larger homes in the suburbs.

CoreLogic’s latest home value index shows as of May 31 unit rents were down 7.7 per cent year on year in Melbourne and down 3 per cent year on year in Sydney.

The property analytics firm said it was 7.5 per cent cheaper to rent an apartment in Sydney in May than it was during the city’s rental peak in 2018, and 8.5 per cent cheaper in Melbourne than during its peak in 2019.

And SQM Research suggests the annual falls have been even larger.

For the week ending June 12, SQM’s weekly rents index showed unit rent prices were 5.1 per cent cheaper than this time last year in Sydney and 11.0 per cent cheaper in Melbourne.

AMP Capital chief economist Shane Oliver said the sharp decline in weekly rents in Sydney and Melbourne reflected a “big divergence” in Australia’s capital city rental markets.

Weekly unit rents are up by as much as 20.5 per cent year on year in Darwin and 16.5 per cent in Perth, with data from the Real Estate Institute of Australia reflecting a massive difference in the vacancy rates of the nation’s two largest cities and those of the six other capitals.

Melbourne’s vacancy rate is above 6 per cent and Sydney’s remains above 3 per cent, while the average of the six other capital cities is closer to 1 per cent, according to REIA data shared by AMP Capital.

“Melbourne’s high vacancy rate mainly reflects units due to the absence of foreign students, the pandemic-driven desire to escape to houses in the suburbs, and the relatively bigger impact the coronavirus has had on Melbourne,” Dr Oliver said.

SQM Research owner Louis Christopher added an additional factor to Dr Oliver’s list: An oversupply of inner-city apartments coming onto the market over the past 12 months.

Mr Christopher said the big fall in CBD rents had affected other parts of the rental market in Sydney and Melbourne, as tenants could use the large drops as a bargaining tool when negotiating cheaper rents elsewhere.

He told The New Daily there was also some weakness in the CBDs of Adelaide and Brisbane, but said there was “great demand for accommodation outside the two largest capital cities”.

Asked how long the trend of cheap inner-city rents would continue, Mr Christopher said there was unlikely to be a major shift until the international border reopened.

“It’s likely to stay weak for the inner-city apartment market for some time yet,” he said.

“We know there’s going to be more supply coming on. So, for the short to medium term, it’s going to stay a renter’s market in the inner-city areas for units.

“And for the short to medium and maybe long term, it’s going to stay a landlord’s market for regional Australia.”

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