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Melbourne apartment rents

Will Melbourne apartment rents hibernate this Winter?

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Historically, Melbourne apartment rents spike in Summer and hibernate in Winter. But last year they didn’t. Now as the days shorten through the middle of the year, we all want to know, what will happen to the rental market in the Winter of 2024.

The apartment rental market was so strong in 2023 it ploughed through Winter like an Antarctic icebreaker. Since mid-2022 we have now had almost 2 years of unabated month on month rental growth.

Formal research lags what is going on in the market, but it usually ratifies what we see happen every day. And what we are starting to see is apartments taking slightly longer to lease. Also, renter desperation is starting to give way to more careful consideration. So, does that mean rents are coming off? No. Not quite.

Like any market, buyers and sellers (owners and renters) are in a constant state of negotiation. They circle each other as the power shifts back and forth. Property by property, they meet in the middle to transact, thereby forming the market. During covid, apartment renters had the power and rental rates fell sharply. Then it flipped. It was the owners turn to dictate terms and apartment rents rose.

Since 2022 some renters have been offering rent above the asking price just to secure a home. This pushes rents up. Owners and agents have continued to lift asking rents partly to capture the market rise and partly to recover the increased investment costs including higher interest rates, new taxes and compliance costs.

As news of the hot rental market spreads, asking rents keep rising and renters keep paying (if they can and if they must). But every market has its limit. Anecdotally we are starting to see renters looking for other options.

In January 24 we wrote about how house sharing site Flatmates reported a record 212,000 members nationally. This was in direct response to rising rents and cost of living pressures. People are looking to make some extra cash by renting out a room as well as renters looking for a cheaper option.

Apartment rents have risen anywhere from 10% to 50% over the last 12 months. This high rate of growth is unsustainable. When owners and agents project these growth rates to new asking rents, they can overshoot the market beyond what renters can pay. Normal long term rental growth rates are around 3% – 4%.

We are starting to see some asking rents project the recent growth rates forward and above renters’ capacity to pay. Renters are baulking when this happens are look for more sustainable options. Interestingly, in the last month we are seeing green shoots in the apartment sales market. Apartment capital values may be starting to improve. Is this the long-awaited tipping point of renters bubbling over to become buyers?

Mr Cameron Kusher, Executive Manager, Economic Research at PropTrack, recently released their Rental Report for the March 2024 quarter. It showed median advertised rents across Australia for the March quarter rose by 3.4% to hit $600/wk. However, it also found the rate of growth is slowing. For the same time last year, the growth rate was 5.8% for the quarter.

While the March quarter is not Winter, it demonstrates that the rate of growth in rents we saw in 2023 is slowing. This trend is expected to continue into 2024 coupling with the normally quieter Winter months.

Underlying this is the fundamental drivers to the rental market forcing it up. Net migration to Australia remains relatively high and new housing supply is still stuck in first gear. Some would stay it has stalled.

So, we can expect to see the apartment rental market continue to grow through Winter but at a more subdued rate. Owners will be well advised to consider moderate increases to secure quality tenants and enjoy a stable income with a pattern of solid increases over the next few years.

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