Holiday Vacancies

December 10, 2016

 

 

Christmas is fast approaching and with it the holiday slow down. With this in mind many investors have taken proactive measures to lease their properties and reduce vacancy prior to the slow Christmas period. There are several strategies property owners can utilise to get their properties tenanted or stand out amongst the crowd.  Owners can offer a period of time rent free, drop rent slightly or offer some additional incentive after a quick calculation of the cost of incentive vs. holding a property vacant over the holidays. Not only does the time of year affect vacancies but also the market the properties are situated in.  

 

The most recent vacancy measure for Brisbane was healthy measuring 3% in early December.  This is in line with a balanced market. The current vacancy rate is also significantly increased by the number of properties advertised for lease in the inner most ring of the city.  

 

Some suburbs have experienced a decrease in rental yield while others have remained buoyant.  A decreasing rental yield is usually caused by higher vacancies of around 4%. With this not being the case for most desirable suburbs, we need to dig a little deeper to understand the reason for any drop in rental values around Brisbane.  The main driving factor for lower yields anywhere throughout Brisbane is the oversupply of rental property recently completed within 3km of the Brisbane CBD. Areas such as Fortitude Valley, New Farm and South Brisbane are recording vacancy rates of 6.1%, 5.9% and 5.4% respectively.  There are several more inner city suburbs in similar positions. As a result these suburbs have been dropping rents like crazy to try and fill the vacancies. This has created a very competitive

rental market and means low supply areas are required to reduce rents to remain competitive with the inner city market.

 

This is not the first time this has happened.  Melbourne is a perfect example where areas such as Docklands were oversupplied and dragged down yields throughout Melbourne, averaging in the low 4% between 2009 and 2016 for units. This was well below Sydney, which was averaging in the high 4%. Despite the lower rental yields in Melbourne, median prices still increased over 30%2 in 3 years supported by relatively high affordability (similar to conditions throughout Brisbane).

 

Today unit yields in Sydney are at record lows falling to 3.9% while Melbourne is still in the low 4%. Brisbane, at 5.1%, is currently the 3rd highest yielding Australian capital city behind Hobart and Canberra.  Investors should keep the above in mind while competing for tenants.

 

1SQM Research

2 BIS Shrapnel

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