Apartment rents in Australia show no signs of slowing down, as new CBRE projections indicate that five Australian markets are poised for substantial rental growth, ranging from the mid to high 30 per cent range by 2028.
CBRE’s latest report, the Apartment Rent and Vacancy Outlook, delves into 53 precincts across major Australian cities.
Projections suggest that median rents for two-bedroom apartments in these precincts will surge by $120 per week (an increase of 26 per cent) between 2023 and 2028. This growth is driven by a further reduction in city vacancy rates, expected to drop from the current average of 1.8 per cent to a mere 0.8 per cent—which is approximately one-third of the previous decade’s average.
The most significant rental growth, at approximately 30 per cent, is anticipated in five key markets: Sydney’s Eastern Suburbs, Parramatta, Melbourne North, Perth City and virtually all precincts in Brisbane.
“At the start of 2013 just four precincts in Australia had an average rent of over $600/week for two-bedroom apartments, being the Sydney and Perth CBDs, Sydney’s Eastern Suburbs and Sydney’s Lower North Shore,” CBRE’s Pacific Head of Research Sameer Chopra noted.
“By June this had grown to 20 precincts and by 2028 we expect 38 precincts – or over 70 per cent of Australia’s two-bedroom apartments – to have a rent exceeding $600/week.”
The tightening vacancy rates have played a significant role in this trend. Mr Chopra points out that for the markets to achieve equilibrium, vacancy rates should ideally hover around 4 per cent to 5 per cent.
To prevent further declines in vacancy rates, it would necessitate the construction of approximately 75,000 new apartments each year across Australia to align with the pace of population growth.
However, the supply falls short of this target, as CBRE’s projections indicate that new housing units are expected to reach approximately 60,000 in both 2024 and 2027. This number is significantly lower, about 40 per cent below the peak seen in 2017 and approaching the lowest levels in nearly a decade.
“Australia’s monthly apartments rents are currently 30 per cent cheaper than purchasing at current prices across most precincts. The reversion of interest rates to say 2 per cent-2.5 per cent could see this relative rental affordability remain as capital values rise.”
It comes as property prices continue to rise across the country.
In October, CoreLogic’s national Home Value Index saw a further increase of 0.9 per cent, marking an acceleration from the 0.7 per cent rise observed in September (which was revised down from 0.8 per cent). Since hitting a low point in January, the national HVI has surged by 7.6 per cent, bringing it within half a per cent of the historic high recorded in April the previous year.
During the month, dwelling values experienced growth in all of the capital cities except for Darwin, which saw a slight decrease of -0.1 per cent. Notably, Perth (1.6 per cent), Brisbane (1.4 per cent), and Adelaide (1.3 per cent) continued to stand out, displaying stronger performance compared to the other capital cities.
Over the first ten months of the year, three capital cities have witnessed dwelling values soaring by more than 10 per cent. This growth was led by Sydney (10.9 per cent), followed closely by Perth (10.8 per cent) and Brisbane (10.2 per cent).