The vacancy rate is an important metric for savvy property investors to review, not just currently but the historical and forecast rate also. But what exactly is a vacancy rate and why does it matter to investors.

In this blog post, we’re going to explore the current vacancy rates across the country and why investors should be paying attention.

Latest Vacancy Rates 2024

Australia’s capital cities are showing distinct trends in vacancy rates, with some cities facing particularly tight conditions and others stabilising or even slightly rising.

Let’s explore the vacancy rate situation in some of the key markets:

• Hobart: With a vacancy rate of just 0.63% after a sharp decline in September, Hobart now holds one of the tightest rental markets among Australia’s capital cities. For investors, this represents a robust rental demand but could indicate an overheated market where rental increases may eventually stall.
• Canberra: Recording the second-largest drop in vacancy rates among major cities, Canberra’s rate fell to 2.0% in September. Demand for rentals has remained steady, supported by Canberra’s stable economy and appeal to both public and private sector workers. Election outcomes and Australia's political leadership will often have an impact on the vacancy rate in Canberra, one of the reasons we typically prefer to look elsewhere when investing.
• Sydney: Sydney’s vacancy rate sits at 1.56% after dropping in September. Despite high property prices, demand for rentals has pushed vacancy rates lower, reflecting strong urban appeal and ongoing migration trends into the city.
• Perth and Brisbane: These two cities have seen relatively smaller drops of in September, and both remain very tight. Perth’s vacancy rate sits at just 0.6%, while Brisbane is at 1.1% in September. Both cities benefit from ongoing population growth, with Perth particularly appealing to migrants seeking affordable urban housing, albeit with recent price growth, the affordability story is rapidly disappearing.
• Melbourne and Adelaide: Both cities saw minimal changes in September, with Melbourne’s vacancy rate edging up to 1.7%, which is the highest level since Dec 2022, and Adelaide sits at 0.6%. The stable rates suggest a balanced rental market, which can be appealing to investors looking for moderate but steady rental income without the risks associated with rapidly fluctuating vacancy rates.
• Darwin: Darwin bucked the downward trend, with its vacancy rate rising to 1.0%, but still remains a very tight market. The slight increase could signal softer demand or excess supply, making this a market to watch closely for potential oversupply risk.

Regional Markets: The Widening Gap Between Capitals and Country Towns

While vacancy rates in capital cities have been dropping, the regional markets tell a different story. The combined regional vacancy rate declined by 0.08 percentage points to 1.2%, placing regional markets in tighter rental conditions than the capitals. According to CoreLogic, regional vacancy rates have now consistently stayed lower than those of capital cities for the past five months, with the gap widening.

What does this mean for investors? The strength in regional rental demand highlights the appeal of country towns, where quality of life, relative affordability, and growing infrastructure make these areas attractive to renters. For investors, regional properties offer the potential for strong rental yields, but they come with unique considerations, such as lower liquidity and potential volatility in property values compared to urban centres. When we look to invest, we tend to focus more on capital cities to provide more confidence in future capital growth when compared to regional towns.

What Low Vacancy Rates Mean for Investors in 2024

For property investors, low vacancy rates generally signal positive prospects. Here’s how low vacancy rates can impact your investments:

• Increased Rental Yields: When vacancy rates are low, rental demand outpaces supply, which often leads to higher rental prices. This increase in rental income can help investors achieve better yields, particularly if they purchased properties at lower prices before the current rental boom.
• Potential for Capital Growth: Low vacancy rates signal high demand, which can also drive property prices up. Investors may find that properties in areas with low vacancy rates appreciate faster due to the limited availability of housing and the strong competition for rentals.
• Market Stability: A low vacancy rate is typically a sign of a stable and resilient rental market. Properties in high-demand areas tend to experience fewer vacant periods, meaning investors can expect more consistent cash flow and reduced risk of prolonged vacancy-related costs.

Risks in High Vacancy Markets and How Investors Can Navigate Them

While low vacancy rates generally benefit investors, areas with high vacancy rates require a different approach. High vacancy rates, even if only for a short period, can put pressure on rental yields and make properties harder to maintain profitably. Here are some strategies for managing risks in high-vacancy markets:

• Diversify Locations: By investing across different cities or even regions, you reduce the impact of a downturn in one market. This spread also allows you to capture growth in various rental markets, balancing high-demand and lower-demand areas.
• Conduct Market Research: A thorough understanding of local vacancy rates, population trends, and economic drivers can help you make informed decisions. Look for areas with recent infrastructure investments, job growth, or an influx of residents, as these factors can indicate future rental demand.
• Stay Flexible with Rental Pricing: In high-vacancy areas, competitive rental pricing may attract tenants more quickly, reducing the risk of extended vacancy. Adjusting rental prices to market conditions is a useful strategy to keep properties occupied.

Comparing Vacancy Rates Over Time: The Impact of COVID and Beyond

The rental landscape in Australia today is almost unrecognisable from where it was just a few years ago. Vacancy rates have plunged since March 2020, with 46% fewer rental properties sitting vacant as of September 2024. Several factors, including the return of international migration, interstate movement, and an undersupply of rental properties, have tightened the market significantly.

For investors, these trends highlight how quickly rental demand can change. Post-COVID migration surges, shifts to remote work, and policy changes continue to shape the rental landscape, reinforcing the importance of staying updated on market trends to adapt investment strategies effectively.

Practical Tips for Leveraging Vacancy Rates in Investment Decisions

With vacancy rates proving to be a key market indicator, here are practical tips for using them in your investment strategy:

• Evaluate Long-Term Demand Trends: Areas with persistently low vacancy rates often experience population growth and investment in infrastructure. These signs point to sustained demand, which can make an investment more valuable over time.
• Use Vacancy Data in Combination with Other Metrics: Vacancy rates alone don’t paint a complete picture. Combine them with other factors, like employment rates, median incomes, and planned infrastructure, to get a holistic view of an area’s potential.
• Monitor Market Reports Regularly: Many organisations, such as CoreLogic, offer detailed data on vacancy rates and rental trends. Regularly reviewing these reports helps you stay informed and make timely decisions based on current market conditions.

Conclusion

In 2024, property vacancy rates in Australia are more than just a statistic—they’re a critical indicator of market conditions and investor opportunities. Lower vacancy rates in capital cities and the continuing tightness in regional areas highlight the strong rental demand in Australia’s housing market. For investors, these trends mean opportunities for better yields, stable rental income, and potential capital growth.

Yet, while low vacancy rates present opportunities, they also come with challenges, especially in navigating areas with higher vacancy risks. By keeping a close eye on market data, evaluating locations strategically, and staying flexible, investors can make the most of these trends and build resilient, profitable portfolios in today’s evolving property market.

Investors should remain vigilant and proactive, as the property market remains as dynamic as ever. Whether buying, holding, or selling, understanding the impact of vacancy rates is key to maximising returns and ensuring long-term investment success in Australia’s unique property landscape.

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General Information Warning: The information contained herein is of a general nature only and does not constitute in any way, personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional property investment advice specific to your circumstances.