Last year’s lockdown created extreme uncertainty in Sydney’s rental market. Between March and May 2020, vacancy rates rose, rents fell, and a general feeling of pessimism set in.
Sydney’s inner city and apartments were among the hardest hit, with people moving to the suburbs and regional areas, and overseas students prevented from entering the country.
The 2021 lockdown has been different. Although coronavirus case numbers are higher than last year and it appears the current restrictions may continue for some time, we believe landlords should feel more optimistic about the market.
Data reveals a tale of two lockdowns
According to SQM Research, in May 2020, the city-wide vacancy rate hit 4.1% – its highest level in 18 years. This was a result of many factors, including the fact that confidence and activity were generally low, people were tending to stay put rather than look for a new rental, and a substantial segment in the inner city rental market – overseas students – was barred from entering the country.
By June 2021, restrictions were lifting, people were more optimistic and the market had started to turn. The vacancy rate also fell to a much healthier 2.8%.
The number of available rental listings on the market followed this trend, peaking in mid-2020, before steadily declining as more people began looking for somewhere to rent.
Weekly rents followed a similar pattern – they tend to lag the vacancy rate slightly. The median rent reached a low in the second half of 2020 before stabilising and then slowly increasing.
At the time that we entered the June 2021 lockdown, Sydney’s vacancy rate had fallen to 2.8%. Yields remained steady. As of August 2021, the gross rental yield for units sits at 3.5%, while houses sit at 2.3%. This has slowly and gradually come down from a peak in 2011, partly as a result of rising house prices and low-interest rates.
What these general figures don’t show are the inconsistencies in the current market, based on suburb and property type. In some lifestyle locations, rents have risen by up to 30%. In others, including Sydney’s inner Eastern suburbs, rents have fallen by 20%. Rents have also varied across houses and units, with houses faring better than units in the main.
What we are seeing
Here at Metro Realty, average rents have increased over the past 12 months, although we’re not quite back to 2019 levels. Our average days on market increased a little in July 2021 to 37. However, this largely reflected the slowness that always accompanies the winter rental market. Over the second quarter, the number of days a property took to rent out was consistent with the past two years, hovering in the twenties.
Last year we observed a huge surge of properties leased between May and June. What is interesting is that, unlike 2020, we haven’t seen a large volume of listings during this lockdown. Instead, the number of rental properties on the market has remained fairly steady, sitting just above 2019 levels.
Importantly, unlike last year, we also aren’t seeing falling rents. While the 2020 lockdown was accompanied by a price drop of around 20%, prices have since risen 10% and are now steady.
All throughout 2021, we have received a lot of interest in all our listed properties and this continues, even after lockdown. Unlike last year, it seems people are still moving.
In fact, well-presented properties asking realistic market prices are leasing within the month.
What landlords need to know
Life is certainly different in lockdown. For starters, masks are now mandatory in all common areas of strata buildings. As agents, we’re no longer permitted to hold typical open homes, and now show properties by one-on-one private inspections. We’re finding a lot of prospective tenants actually prefer this method of seeing a property because it gives them time alone in their new potential homes, as well as direct access to us.
Generally, we’re positive about the current market. Unlike the 2020 lockdown, quality properties are still in demand and will lease. It’s true that this may take slightly longer than prior to lockdown, but prices are holding firm and we haven’t had many people ask for rent reductions.
That said, landlords need to be realistic and flexible. It’s not a good idea to have your heart set on one price or one tenant profile. For those with existing tenants, we’d encourage you to be cautious about raising the rent. Prolonged vacancy periods can have a real impact on the profitability of your investment. It often pays to negotiate on rent a little rather than having a tenant breaking their lease.
For example, if a $600 a week property is vacant for just two weeks, this is equivalent to reducing the rent by $20 a week for more than a year.
Landlords and tenants should also understand that the lockdown has made it more difficult to carry out repairs and maintenance. Some apartment buildings are under strict lockdowns and reluctant to let tradespeople in without particular requirements being met. While urgent repairs can go ahead, less important ones may have to wait.
Making sense of today’s market
In short, today’s rental market is not without its challenges. However, it’s a very different market from the one we experienced in early-to-mid 2020. Landlords should feel confident that if they’re prepared to be patient and meet the market, their property will lease. They should also take heart from the fact that both vacancy rates and median rents have been relatively stable.
Want to chat with us about renting your property in the Sydney area? We’d love to hear from you.