According to CoreLogic, rental rates continued to trend lower through July, with the weakest rental conditions emanating from Hobart, Sydney and Melbourne, and the unit sector driving the largest falls.
Since March, capital city house rents have dropped by only 0.3% while over the same period unit rents are down a more substantial 2.6%. Hobart stands out as recording the largest decreases, with rents for houses down 2.0%, and units down 4.4% since March.
Weaker rental conditions are most evident in those markets where rental demand has been impacted by border closures and supply additions. Some inner-city areas of Melbourne and Sydney have seen rental listings more than double since March due to the combined effect of temporary migrants departing, and overseas arrivals, including foreign students, stalling.
Compounding this weak demand position is the surge in construction activity and investment over previous years, which has added to inner city rental supply.
Other factors are also impacting rental markets. Anecdotally, the transition of short-term accommodation to permanent rentals is temporarily adding to supply. Additionally, the significant employment decline across food and accommodation services, arts and recreation services is compounding the weak rental demand as these sectors workers are more likely to rent. To date these sectors have seen the largest number of job losses and impact to wages. With the second wave of social distancing policies and border closures, these workers are once again facing hardship.
Perth and Adelaide are showing the strongest rental conditions amongst the capital cities. These markets have also generally seen lower levels of investor participation, and less ‘investment grade’ construction over recent years, which has kept rental supply reasonably tight.
Gross rental yields