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Apartment rents to jump 30%

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Apartment rents are expected to rise by 30% in some precincts over the next 5 years according to aparmtent research just released by CBRE.

We have seen a sharp jump in apartment rents over the last 1-2 years with some of that rise attributed to a catch up in falling rents during covid. This report suggest the ride is not over yet.

Now global property services firm CBRE and their apartment research team have forecast that recent growth will continue for the next 5 years. In their report “CBRE expect median rents to grow by $120/wk (+26%) between 2023-2028 across 53 precincts in Australian capital cities. A number of precincts are likely to see mid/high 30% rental growth.”

The report also says it “expects capital city vacancy will fall further to 0.8% by 2028, from 1.8% in 2023.”

CBRE see the ongoing demand for housing generally to benefit from the triple boost of rising population (+3.9m) rising jobs (+2.6m) and rising income (+$36k) over the next 10 years.

As detailed in previous updates here, the supply of new apartments is going to fall well short of meeting the housing demand.  CBRE’s report states that Australia’s population growth requires apartment supply of about 75,000 each year (plus detached housing) just to keep up. In the major apartment cities of Melbourne, Sydney and Brisbane the forecast combined apartment supply is just 20,500 per year during 2024 – 2028.

In the Melbourne apartment market specifically, the report states new apartment delivery is expected to average just 10,000 p.a from 2024 – 2028 while demand is forecast to need 38,000 p.a over the same time. That is an alarming housing shortfall driving down vacancy from 1.7% to 0.9%

Remember one of CBRE’s demand drivers is rising population which is essentially immigration. Almost all migrants to any new country rent for a while before buying.

While we expect the insatiable demand for apartment rental to flow over to apartment buyers, the CBRE report states it is 30% cheaper to rent than buy. While we would expect this to be largely due to the recent and rapid increase in interest rates the report states that even in 2018, rents were 20% below the cost of buying. In 2018 the RBA cash rate was 1.8% vs 4.1% in Oct 2023. Maybe this gap will close over the next few years.

There have been many apartment investors running the numbers on hold vs sell. Obviously, this analysis now needs to include a healthy jump in rents over the next 4 years. At some stage in the next few years we should see apartment investment buyers return to the market. Especially if interest rates come back down in 2024-25 as has been suggested.

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