Furnished rental market moves out of town

A major shift has taken place in the furnished house and apartment rental market, with demand crunched in most CBD and inner suburban markets but soaring in regional tourist towns.

Landlords have long debated the virtues of renting properties fully furnished or empty. 

While approximately 90 per cent of the rental market is for unfurnished, CBD apartments have been able to attract at least 30-50 per cent higher rents when furnished and represented around 30 per cent of the inner city market.

The onset of the pandemic has dried up the source of clients seeking furnished properties, with international students, interstate executives and project managers, and short term lease visitors now almost non-existent. 

But one landlord’s crisis is another’s opportunity, and fully furnished properties are experiencing a boom in prices as holidaymakers explore their own states and workers enjoy a tree or sea change while working remotely.

Sydney share accommodation and furnished apartment specialists Furnished Property had experienced the full impact of the covid closures.

“Last month was probably, hopefully, the bottom of the market for furnished property, with business down by about 70 per cent,” property manager Erica Wu said.

“It’s a bit better now, with local tenants who might have shared accommodation in the past now looking for private residences.”

Ms Wu said the overall rental market was difficult but the furnished segment had been particularly hard-hit. 

“The vast majority of our business has been from international clients who don’t have furniture and usually take up a six to 12 month lease, and obviously this market segment has evaporated.”

Chief marketing officer of furnished apartment and short-term lease specialists MadeComfy, Nina Jung, said before COVID gross rental returns for furnished properties averaged around 40 per cent higher than their unfurnished counterparts. 

While that margin had fallen, there was still demand from city workers that was maintaining the price differential.

“It is hard to draw reliable comparisons as different areas are hit with varying degrees of travel restrictions and lockdowns, however, we do find certain types of furnished properties have been a popular solution in the current market for people looking for a flexible rental they can move into straight away,” Ms Jung said.

“Unlike tenants in the long term market, our property owners were not locked into the federal government's eviction moratorium, which allowed us to diversify our accommodation offerings to other sectors such as frontline healthcare workers, international travellers who could not immediately return to their country of origin, returning expats and government workers.

Regional respite

Furnished accommodation was in strong demand in two very specific markets – holiday centres and Perth.

MadeComfy’s Ms Jung named areas such as the Sydney Northern Beaches, Bondi, Byron Bay and Blue Mountains in New South Wales, and Queensland’s Gold Coast and Sunshine Coast as current hot spots for furnished holiday rentals being used by people working from home for mid-term stays, and wanting to be close to the ocean or beaches.

Ray White Group property management chief executive Emily Sim told Australian Property Investor Magazine that investors would be best placed with furnished offerings in beachfront areas, ski fields and farm stay accommodation for multiple groups, as these were the new holiday destinations in a world without interstate or overseas travel.

“Many people are currently taking on the lease of a permanent holiday home as the opportunity to work remotely is so much greater,” Ms Sim said. 

“City locations with furnished properties are the worst affected by COVID but typical holiday and coastal destinations are experiencing a bullish season, with very low vacancy and higher rents as the competition is so much greater all year round as opposed to just during long weekends and school holidays.”

Chris Gray of Sydney property buyer agent Your Empire said the regional Airbnb market was booming.

“Furnished properties have always been a niche market, with more than 90 per cent of one-year leases unfurnished, but there is currently massive demand for furnished properties on a short-term basis in tourist towns,” he said.

The Melbourne furnished property market had been decimated by the more extreme lockdown measures, while in Brisbane demand for inner-city furnished properties in the $300 to $600 range, that typically cater to international students, had completely fallen away to the point unfurnished properties were attracting the higher rents. 

The one capital city market where furnished apartments were continuing to thrive was Perth, where covid restrictions were barely noticeable.

Leasing Consultant Joe Hotchin-Lott from Arena Real Estate, who focused largely on the inner city East Perth precinct, said furnished apartments were in high demand because of, rather than in spite of, the travel restrictions.

“A lot of people are trapped here and can’t go home and with that comes a need for furnished property,” Mr Hotchin-Lott said.

“We have a lot of international students who prefer to stay here without the covid restrictions, particularly Indonesians, as well as fly-in fly-out workers who used to travel to mine sites from interstate now basing themselves in Perth.

Furnished apartments continued to attract a price advantage of around 60 per cent above unfurnished along Adelaide Terrace in East Perth, and similar advantages were still found in suburban furnished houses, he said.

“We’ve had a lot of inner city relocation from expats, and from NSW and Victoria, and also, for some reason, from doctors, and they’ve been helping drive demand for furnished property on six to 12 month leases,” he said.

Clean but not cleaning up

Furnished properties have long been the sole format for short term lease arrangements, such as Airbnb. While the properties might be vacant more frequently, the furnished and short term pricing structure has delivered favourable returns to investors. 

The crash in demand for furnished apartments in the east coast CBD rental markets was in part due to a flood of properties hitting the market that were previously attracting one week short stay visitors.

Ms Sim of the Ray White Group said this market was now moribund.

“Without travel this really is not an opportunity anymore - border closures almost remove this opportunity completely as there is no demand.

MadeComfy’s Ms Jung said there was still low-level demand from those looking to avoid hotel expenses.

“COVID-19 has placed a greater emphasis from guests on higher quality cleaning standards and accelerated the preference for larger, private spaces such as entire houses and apartments,” Ms Jung said.

“While some parts of the commercial hotel sector have benefited from accommodating the government's hotel quarantine program, the short-term rental market has seen more bookings from guests who want to avoid busy hotel lobbies and larger self-contained spaces instead of a hotel room that will not have a separate living and bedroom area or a kitchen. 

“We have also seen increasingly more guests look for professionally managed Airbnb rentals as opposed to house share or private host arrangements, for a consistent accommodation experience they can be assured will match their expectations for cleanliness.”