Tenants market to emerge in 2021 as rents plummet in Sydney, Melbourne

2020 was a good year for renters and a bad one for landlords owning inner-city apartments in Sydney and Melbourne, but it was a different story in other capitals.

A for lease sign is displayed in front of a house in Sydney. Rents fell 10% in the NSW capital in 2020. Picture: Paul Miller

A fall in demand for inner-city apartments rentals in Sydney and Melbourne caused prices to drop by up to 10 per cent last year, while investors in smaller markets benefited from tight availability as prices surged.

Limited overseas migration and the flight to suburbia last year caused rents for units to drop 10.3 per cent in Sydney and 8.7 per cent in Melbourne over the past 12 months, according to new data from SQM Research.

While house rentals fared slightly better in both cities (down 7.6 per cent and 8.7 per cent respectively), the number of properties available in the Melbourne market ballooned to a vacancy rate of 4.7 per cent, almost double the same in 2019.

SQM managing director Louis Christopher said while signs of improvement could be seen in the two larger cities, including shrinking vacancy rates, 2021 would be tough for investors.

“It’s clear Sydney and Melbourne apartment investors were the losers of 2020 with rents and prices falling,” Mr Christopher said.

“Demand for inner city property will remain affected by the closure of the international border as well as ongoing caution on future city lockdowns. This will mean 2021 will remain largely a tenant’s market in the inner cities but will also very much remain a landlord’s market for regional Australia.”

Nationally, house rents rose 9.2 per cent and units were up 6.3 per cent. Vacancy rates shrunk slightly to 2.2 per cent.

At the other end of the spectrum, rental prices in Darwin and Perth surged last year as vacancies fell below 1 per cent.

Darwin was the biggest mover of the year, with investors seeing a 27 per cent rise in rental returns for houses over 2020 as vacancy shrunk from 3.5 per cent in December 2019 to just 0.7 per cent.

Mr Christopher said the rise was from a low base, with the market having fallen more than that over the past five years. While there was no material change in the local economy, he suggested an influx of migration from Victoria in response to the Northern Territory’s swift health response may play a part.

Perth also recorded a significant change as the city’s six-year housing downturn came to an end. House rents increased by 12 per cent over 2020, while units were up 9.3 per cent. Limited investment and development in recent years has created under-supply in the city, with the portion of available rentals falling from 2.5 per cent to 0.9 per cent.

Three capital cities — Canberra, Darwin and Hobart — had 601 or fewer properties available in December.

Rents climbed in Brisbane (houses up 0.4 per cent, units 0.6 per cent), Adelaide (houses up 4 per cent, units up 1.4 per cent) and Canberra (houses up 0.4 per cent, units up 0.6 per cent) over 2020. While houses in Hobart gained rental momentum (up 0.5 per cent), unit rents fell 5.1 per cent.