There is light at the end of the tunnel for rental markets after a rollercoaster ride throughout 2020.
The COVID-19 lockdown adversely hit our economy, job security and migration numbers. Unfortunately, in many metropolitan markets all these factors added up to a decline in asking rents and a rise in vacancy rates.
Fortunately by September, the decline in national rental values had eased over the quarter to -0.2 per cent from a low of -0.5 per cent according to CoreLogic. That improvement can, for the most part, be attributed to a rise in regional rents – a 1.2 per cent increase over the third quarter of 2020.
Tim Lawless, Head of Research at CoreLogic reported in October that there had also been a “growing divergence” between rental rates for houses and for units, especially across Melbourne where unit rents were down 3.6 per cent over the September quarter.
“The weakest rental conditions are emanating from the inner city precincts where both a supply and demand shock is having a negative impact on rental rates. These precincts have recorded a surge in new unit supply over recent years, while more recently demand has fallen sharply due to stalled migration and weaker labour market conditions across industries where workers are more likely to rent,” he said.
Litmus test to come early 2021
REA Group Economic Research Executive Manager Cameron Kusher, said in a recent REA Insights Rental Demand Index that while overall demand is much lower than its peak, this time of year is “usually fairly quiet” when it comes to rental demand.
“While I expect listings of properties for rent will continue to be closely monitored, the real litmus test for the market will occur in early 2021 when many leases expire and renters start looking for rental reductions or decide to move to a new property,” he wrote.
“Over the first quarter of 2021 we are likely to see high overall rental demand as renters look for the best deal possible and landlords compete to keep their current tenants in a tougher market due to the cessation of overseas migration caused by closed international borders,” he added.
Prue Bryant, Head of Rentals at Brad Teal, says 2020 has been a time for property managers, landlords and tenants to be transparent and understanding, but adds that the open dialogue needs to continue for all sides to ride the wave.
“It’s been an interesting time. We’ve been juggling many changes in the last six to nine months, but I’m hopeful we’re on the other end of it as we navigate our way through,” she said.
“As property managers, we’re not only managing our daily routine, but also managing everything else that’s been thrown at us. That’s the new legislation, increased communication with our clients – both landlords and tenants. We’ve been negotiating rent reductions where tenants have been financially affected by COVID, and managing a higher volume of vacancies. I’ve been doing this for 25 years and I’ve honestly never experienced anything like it as a property manager,” she says.
What tenants want
While Ms Bryant says there is no denying it’s a “tenants’ market” for inner city apartments, there are still some property types that are performing well in challenging market conditions.
“If we had more three to four-bedroom houses between $600 and $800 per week, they would be snapped up within days – or hours. Those homes tend to be in areas like Ascot Vale, Moonee Ponds, Essendon, that corridor between 7kms to 10kms of the city,” she said.
“Whether it’s a single or a double fronted home, people want a little more space because they’ve obviously been spending a lot more time at home. That’s why a lot more apartments are becoming vacant as people are upsizing to a house,” she says.
How to get a good tenant
With so much competition in some areas, Ms Bryant says “landlords need to consider what will give their property a point of difference.”
She adds that landlords should also never underestimate the value of a great first impression.
“If you’ve got a property that needs a little TLC, now would be the time to do it. Tenants have lots to choose from, so we make sure that our properties are well-presented to ensure we attract the right tenant. If there are three or four similar properties at similar prices, then we need to make sure our landlords’ properties are standing out,” she said.
“Unfortunately they probably need to also adjust their pricing a little. They have to listen to the experts, because there’s no point just holding out and being adamant you’ll receive the same rent, or more, than you were previously.
“Your agent understands the market and can give you advice on prospective tenants as well as comparative properties and what they’re achieving. Listen, weather the storm, and hopefully in six to 12 months things will improve and you’ll be able to reassess the rents accordingly,” she says.