This article is from the Australian Property Journal archive
APARTMENT renters are set to be whacked with a 28% rise in rents between now and 2028, as low completion rates drive vacancies even further down.
According to CBRE’s Apartment Vacancy and Rent Outlook, the median rent for a two-bedroom apartment in metropolitan precincts in major capital cities will grow by $155 per week between 2024 and 2028.
A 30% increase is forecast across 25 out of 53 analysed precincts over the next five years, including Sydney’s eastern suburbs, Parramatta, Melbourne’s inner east and north, almost all precincts in Brisbane, and north west and south west Perth.
Just four precincts in Australia had an average rent of over $600 per week for two-bedroom apartments in 2013, those being the Sydney and Perth CBDs, Sydney’s eastern suburbs and Sydney’s Lower North Shore. By June of 2023 this had grown to 20 precincts, and CBRE expects 41 precincts – or more than 75% of Australia’s two-bedroom apartments – to have a rent exceeding $600 per week.
“Unfortunately, some of the potential apartment supply has been trimmed and pushed out. This has seen a 9% reduction in potential supply over the period from 2023 to 2028, this is what has contributed to our growth forecasts,” said CBRE’s Pacific head of research Sameer Chopra.
CBRE Research forecasts capital city apartment vacancy will fall to 0.8% by 2028 from 1.8% in 2023 – just one-third of the previous decade’s 2.5% average.
“A balanced market for apartment rentals would typically see vacancy around 4% to 5%. We estimate an incremental 90,000 apartments are needed, over and above the current absorption rate of circa 170,000 to 200,000 houses and apartments per annum.”
Apartment delivery in Sydney is set to average 14,500 per annum until 2028, well below the 33,000 per annum demand for housing stock. CBRE expects vacancy will be crunched from 2.2% to 0.7% and average rent growth of 5% per annum to 2028 is anticipated.
In Melbourne, just 10,000 apartments per year will be delivered over in the next four years, against demand for 37,000 apartments each year over the next five years. City-wide vacancy will come down from 1.7% to 1.0%.
Brisbane delivery will average 5,200 each year, will below demand for 18,000 per annum, which will force vacancies from 1.1% to 1.0%.
The vacancy situation is a sharp sub-1% in large parts of Adelaide, Melbourne and Perth and CBRE is tipping this to continue over the next five years.
Markets expected to see the sharpest falls in vacancy include suburbs near Sydney’s eastern suburbs, including the inner west and Lower North Shore, Melbourne’s inner east and south east suburbs, Brisbane’s south east and north Gold Coast suburbs and north Canberra.
According to Charter Keck Cramer, the apartment market in 2024 will defined by the widening gap between demand and supply, with projects that will deliver the much-needed stock facing feasibility hurdles, compounded by difficulties in finding reputable and financially stable builders in the current climate.
Chopra expects the cost of renting to remain more affordable than purchasing across Australia’s major cities.
Monthly rent payments are currently 22% cheaper than alternate buy options across most precincts in Australian capital cities, he said, and not just because of higher mortgage rates, given that monthly rental costs were 30% lower than monthly mortgage repayments in 2018 and in December of that year the cash rate was 1.5% compared to 4.35% in December 2023.
