With National News Headlines stating CBD’s have been hit hard by Covid-19 lockdowns, with rental vacancies surging, I thought it would be an interesting exercise to dive deeper into the data for Brisbane.
The latest SQM Research found that the national rental vacancy rate recorded a one month jump from 2.0% in March to 2.6% in April, but certain areas around the country fared better than others.
In Brisbane’s CBD, a sharp rise in residential vacancies was observed from 5.3% in March to 11.3% in April 2020. By all accounts, the vacancy rate in March was already higher than what we would allow for when selecting an investment grade location, but let’s explore this a little further.
A Vacancy Rate helps us understand the number of rental properties in a location or market that are currently vacant or without a tenant, at a particular point in time. It is the opposite of an occupancy rate. The vacancy rate is expressed at a percentage. For example, if there are 100 rental properties in a suburb, and 10 of them are vacant, then the vacancy rate would be 10%.
A low vacancy rate means more confidence in a market, more security of income for an investor and a better net yield. A wise investor should know the vacancy rate before buying into a particular market. It should also be represented in the projected cash flow to ensure that an investor can afford to be without the rental income for the number of weeks as indicated by a locations’ vacancy rate.
Vacancy Rates can also be a growth indicator because a location with a low vacancy rate often correlates with a low supply of properties and a high demand for those properties. Remember, the balance between supply and demand is what drives property values.
That said, the Australian National Average Vacancy Rate is 2.5% and some commentators suggest that a vacancy rate of 3% indicates a balanced market where there is an equal number of properties available for rent and tenants looking for those properties. Anything higher than 3% might indicate there is a risk that a property will remain vacant for longer, and therefore for an investor this presents a cash flow risk. Anything lower minimizes the vacancy risk for an investor.
We have analysed every postcode in Brisbane to determine the most “at-risk” suburbs in the Brisbane City Council Region (excluding Ipswich, Logan, Redlands and Moreton Bay) based on the most recent SQM Research as at the end of April 2020.
See below a table of those suburbs in Brisbane which have a current vacancy rate above 4% at the end of April 2020 and that have also experienced the largest spike in vacancies between March 2020 and April 2020.
|Suburb||Current Vacancy Rate as at April 2020||Increase between March and April 2020|
|Eight Mile Plains||4.2%||+1%|
What we can draw from this data is that the majority of these suburbs have higher density dwellings (investor type units for example), or are located in university precincts where there may be lower rental demand from students at the moment – particularly international students.
Of interest is that other suburbs in this list that do not have higher density dwellings, but still have such high vacancy, are suburbs where occupants are predominantly born outside of Australia and where there is a very large proportion of households where a non-English language is spoken at home. What this means, I don’t quite know but I thought it was an interesting trend as it tells us a bit more about the demographics of occupants in those locations.
Of course there are many suburbs across Brisbane that still have record low vacancy rates, despite Covid-19 and its related impacts. It always comes back to the local drivers of supply and demand. If there is demand from tenants, it is safe to assume the location is a desirable area to live. Desirable areas attract renters and home buyers alike.
If a location becomes attractive to live in, tenants will move there before home owners. This is due to their mobility and ease of getting into the market. They will put downward pressure on the vacancy rate making the location appealing to an investor to buy there. If home buying and demand in an area increases, what typically follows is capital growth.
This provides some insiders tips on one way you can select an investment grade location when purchasing an investment property. There are many things to consider and vacancy rates are definitely important to understand, among many other things. But be sure to understand how different property types and different locations can have different vacancy trends, because it is times like now where property investors who have purchased in high-risk locations will be feeling the pinch.
For more information about how we can help you with your investment purchase in Brisbane, please get in touch with our team. We are here to help!