New supply, soft demand lifts vacancy rate in Sydney CBD

Residential rental vacancies rose across the Sydney, Melbourne and Brisbane central business districts during September as new supply hit the market and demand softened due to lockdowns and a lack of international students, SQM Research figures show.

But rental markets in the capitals are poised to tighten once the restrictions are lifted as workers return and students are allowed back.

The proportion of empty rental apartments in the Sydney CBD rose by 40 basis points to 8.2 per cent, Melbourne was up by 10 basis points to 8.4 per cent and Brisbane jumped by 1.1 percentage points to 8.6 per cent.

CBD vacancies in Sydney and Melbourne had been trending lower before the recent lockdowns were imposed.

“I think we should see some reversal in vacancies come through as the lockdowns lift,” SQM Research managing director Louis Christopher said.

“At the moment there may be a bit of a supply-side issue for the CBDs. There were 170,000 dwellings completed for 2020 and another 150,000 will be added this year.

“This new supply coming through combined with the reduced demand due to the lockdowns may have created this new rise in rental vacancy rates. But overall, I expect we will see a fall in rental vacancy rates for the CBDs once lockdowns are lifted, and there is a sense that restrictions are behind us.”

Regional rental markets continued their strong run, with vacancies declining across Byron Bay, Newcastle and the Mornington Peninsula.

Vacancy rates fell by 10 basis points to 1.2 per cent in Byron Bay, by 50 basis points to 1.4 per cent in Newcastle, and by 30 basis points to 0.5 per cent on the Mornington Peninsula.

Mr Christopher said the regional rental boom was about to end as workers returned to the cities.

“I think it is possible we’ll see a peak in the rental markets sometime soon, and vacancies may start to rise in regional areas once people feel it’s safe to come back to the cities,” he said.

“But I do believe what we’ve experienced was a permanent change in the way we live and work, so there will still be an ongoing demand for regional living and for larger properties that will continue on.”

Nationally, the vacancy rate was steady at 1.7 per cent during the month. It rose to 2.7 per cent across Sydney, and to 1.4 per cent in Brisbane.

Rental markets in Adelaide, Perth, Darwin, Canberra and Hobart remained tight with the vacancy rate staying below 1 per cent.

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