Sydney apartments next in line for uplift as vacancies plunge

Rental vacancies in Sydney have dropped to their lowest level in more than three years, with potential upside emerging in apartments as investors again make their presence felt.

Data from the Real Estate Institute of NSW showed Sydney’s rental vacancy rate was 2.6 per cent at the end of August, with a fourth consecutive monthly decline in August resulting in the lowest rate since May 2018.

REINSW chief executive Tim McKibbin said vacancies fell most sharply in Sydney’s Inner and Outer Rings, which now have a vacancy rate of 2.9 per cent and 1.7 per cent, respectively.

Vacancies in the Inner Ring had been as high as 5.8 per cent as recently as October last year.

Mr McKibbin said vacancies across regional NSW remained extremely tight, with Newcastle sitting at 2.2 per cent and Wollongong at 1.5 per cent.

“Rates in the Central West, Mid-North Coast, Murrumbidgee, Northern Rivers, Orana and South Coast areas all dropped in August,” Mr McKibbin said. 

“The Riverina remained stable for the month, while the Albury, Central Coast, Coffs Harbour, New England and South Eastern areas each experienced a slight uptick in the availability of rental accommodation.”

Mr McKibbin added that it seems that the pandemic rollercoaster is far from over for the residential rental market.

“The last 18 months have been a rollercoaster ride of ups and downs across New South Wales, leaving landlords and tenants alike doing their best to respond to unpredictable market conditions,” he said. 

“This unpredictability will likely continue as we see the impact of current lockdown conditions continue to trickle through to vacancy rate figures in the coming months.”

The drop in vacancies comes as the NSW government provided further clarity on the state’s roadmap out of lockdown, once 70 per cent of the eligible population are fully vaccinated against COVID-19.

Mr McKibbin said while that news would likely provide a timely boost for consumer sentiment, he questioned what upside was left in the property market.

“Week on week, real estate continues to outperform, fuelling the economy,” Mr McKibbin said.

“Clearance rates are already very high. This should continue in the weeks ahead as reduced volumes and intense demand combine to produce predictably strong results for vendors.”

House prices, Mr McKibbin said, could be expected to remain “steady and strong”, while he said apartment prices were starting to close the gap as more investors came back into the picture.

“The government recently clarified the rules allowing one-on-one inspections for investors, though limits on their geographic movements persist, which will perhaps provide further confidence for investors to make a play,” he said.

“Many investors target apartments due to their relative affordability and if the product is new, the depreciation benefits.

“In lieu of a proper commitment to increase supply, if there is indeed scope for further improvement in the real estate market, perhaps it is the apartment sector that will reap the benefits of an increase in sentiment.”