What’s happening with vacancy rates?

Rental vacancy rates have been slowly creeping up month on month, suggesting that the market has peaked at its tightest point and is now softening. And higher vacancies will usually mean downward pressure on asking rents, or at least less upward pressure.

Indeed, a January CoreLogic report revealed national vacancy rates had increased from 1.4% one year ago, to 1.9% at the end of 2024.

Meanwhile, the pace of rental price growth was 4.8% over the past year, down from 8.1% in 2023.

An increase of just 0.4% in the December quarter was the weakest quarterly growth since 2018.

But if you ask those looking for a rental, they may still tell you there’s not a lot out there to choose from. And some markets are tighter than others.

So what does it all mean? It’s important for investors to understand vacancy rate fluctuation, so they can time the beginning and ends of lease terms and make sure their properties appeal to the right people.

Is this year different?

January is usually the month with the most new rental listings, so often, any big variance in January data is disregarded by economists, as they expect things to revert back to trend in February and March.

Things are no different this year, except that vacancy rates had been trending up month by month in the lead up to January, while in recent years the trend had been the reverse.

One key change has been the slowing of the migration intake compared to recent years. When workers first move to Australia, they are likely to rent initially, while international students who come and go at different times of the year will also rent.

Fewer migrants will mean less pressure on rental prices.

Best practice for landlords

While vacancies have eased somewhat, most markets are still well short of being in favour of tenants, or even balanced.

Metro markets are still below 3% vacancy, which is the mark considered balanced, and regional markets are largely still below 2% in much of the country.

Landlords who maintain a quality asset in the right location should have little trouble tenanting their properties.

However, some will need to temper their expectations of rent increases. The sharp hikes landlords have gotten used to over the past 2 years will now plateau and any annual increases will likely be more modest for the next few years.

Understand your market

Lease terms should begin and end at the right time of year to attract the most tenants.

If your asset is located in a mining area, or an agricultural region, for example, tenant demand will be dictated by the seasons when the most employees of that industry will be present.

Coastal regions will also likely attract the most tenants in summer.

In general, a PropTrack report found that January, February, March and September were the months that yielded the highest asking rents for landlords.

May, April and July were the months that asking rents had to be dropped the most in order to find a tenant.

And for tenants?

January has the most listings in every capital city, the PropTrack report revealed. So there is the most choice for tenants, but because so many others are also in the market, there is a lot of competition too and securing a rental can be more expensive than the average month.

The best months to save money were May and April, when asking rents were the most discounted. Of course, there were also fewer listings, so while the bargains were there, they were harder to find.