Our expectations for 2019 Rental Market …
This isn’t pretty
Market Changes The supply of property coming onto the market for rent is substantial. Many new projects will have close to 70% of their units up for lease. In the last 10 years, the volume of new construction has resulted in as much as 10,000 new properties in our area, that’s the equivalent of two new suburbs each the size of North Ryde. New units compete indirectly with older housing stock on the rental market. The massive oversupply of new units floods the market with property in the $600 to $1000 per week rent ranges. New owners become desperate to have their properties leased, even if they have to greatly discount their rents just so they have cashflow. If you have property that normally rents in this price range, it’s a lot harder to find tenants. Many owners will find that they have to reduce their rents to get tenants and so the knock on effect continues with the next rent range of property down. As each of these adjoining market segments come under rent pressure the vacancy problems are transferred and eventually the whole market is affected.
Over the course of last year, we watched rent levels drop by as much as 10%. Early indications are that this year we could see a similar reduction.
The start of this year has seen longer periods of vacancy particularly for property that is not in top condition. It is common for property to be vacant between 4 and 6 weeks between tenancies and we expect the length of vacancy to remain extended for the whole of this year.
The newer standard of housing and the amount of available property on the market are having a significant effect of tenant expectations. It is common for quality tenants to reject a property that lacks air conditioning, dishwashers or updated kitchens and bathrooms. Asking about dishwashers and air conditioning is now common, even with tenants renting a standard 2 bedroom unit at $380 per week. We think this change in expectations will be permanent. We have had a number of owners try to avoid installing built in robes and by our estimates, their loss due to lower rent and vacancy is generally about $1000 a year where as the cost of a built in is roughly $1200. Air conditioning and updating kitchens are a lot more expensive but so will be the long term loss of rent and tenant turnover by not biting the bullet.
In the Ryde council area, according to the rental bond board, tenant bonds turnover on average every 1.25 years. That means the average tenant moves every 1.25 years. Jackson + Rowe’s average tenancy length is 4.5 years so we have a lot less turnover and vacancy than other agents and that saves our clients a lot of money over the years. Competition for good tenants is increasing massively and agents are taking shortcuts that could backfire. We know many agents are accepting tenants without doing any tenancy checks or screening because our existing tenants are being accepted on other properties without anyone checking with us as to how they have been. To secure a quality long term tenant now we will need to offer property at a rent of at least 3-5% below average market. When you consider that market is at least 10% below where it was a year ago, the drop that owners are facing is punishing. On the other hand, having a tenant move in to a property after 6 weeks vacancy only to have them move back out 12 months later with another 6 weeks vacancy is a lot more punishing still.
In time, vacancy and rent levels will stabilise but we don’t think that will happen until next year. You will start to see more newspaper reports of rent falls but right now everyone is obsessed with sales prices. Owners should try and get in front of the downturn by moving quickly to adjust rents down though I’ll be the first to admit, even I’m not sure where the market rent for a property is right now. For us right now, it’s test the rent for a week and then adjust if it’s not pulling. Don’t take short term tenants, they will cost too much in the long run. And plan property upgrades for this year, even if you have a tenant in place. It will save you a lot of down time in the future and will probably help hold on to your tenant.