Welcome back, Melbourne!

Posted by Helen Matsoukas

It’s going to be hard to wipe the smile off my face at the moment. Finally, the city I love has come back to life. From Moomba last weekend, the return of footy crowds at the MCG and workers returning to their city offices (husband included 😊), life is pretty damn good for the city that is known as the world’s most locked down.

I’m not going to lie, my love for Melbourne was challenged many times in the past two years but despite everything, I held onto hope that we weren’t down and out. And down and out we are not!

To think that this time two years ago (almost to the day) Melbourne was about to go into lockdown number 1 of 6, it’s incredible to see the swing back.

2020 shattered our rental market. More than 1 in 10 apartments in the CBD and Southbank sat vacant due to the pandemic. Where 3% vacancy is considered a balanced market, we topped out at a staggering 14.4% vacancy rate during lockdown #2.

By this stage, international borders were closed, the flow of international students was turned off and travellers, domestic and internationally were non-existent. Not to mention working from home changed where Melbournians wanted to live. It was crystal clear that the high supply was unavoidably going to be the cause for massive rent decline.

As pressure mounted, landlords had no choice but to take a ‘no holds barred’ approach to fight for tenants. Not just for new tenants but also for ones that they already had living in their investment properties. Queue the negotiation table… according to our friends at Motion Property, some of our clients hustled and renegotiated rent reductions with their tenants anywhere from 5% – to 14%. In dollar terms, that looks like $22.50 to $63.00 less per week on a $450 per week property.

I can tell you first hand that our CEO, Dr Tony Hayek and our Head of Property Investment Roy Azzi both took a 14% reduction to keep their tenants in Footscray. I personally reduced my tenant’s rent by $50 a week when I found out that one of them had lost their job until he was re-employed. I wasn’t prepared to take the gamble and deal with a vacant property when properties were sitting unoccupied for up to 120 days!

Fast forward two years, 6 lockdowns later, working from home orders lifted and the return of international students and travellers, the latest results from SQM research for February shows a healthy 2.8% vacancy rate for Melbourne.

The more dependable tenant pool is positively swinging rents back around to narrow the gap and this will continue. In fact, I think it will swing so far around that not only will we narrow the gap, but rents will surpass pre-COVID rates and we are set to have a rental crisis on our hands.

As Melbourne edges back into recovery mode, our current 2.8% vacancy rate isn’t just because we are back to our ‘normal’ way of living. The results we are seeing today are also heavily impacted by the restrictions that came into play years before COVID-19 was even a word! The limitations imposed on investor lending, APRA intervention and major changes to credit policy that were all dominating the talk of the property world some 5 to 6 years ago, have also played an integral part in today’s national property shortage.

According to Core Logic, 45% of our overseas migrants settle in either Sydney or Melbourne. New migrants that reach our beautiful country will generally start a ‘tenure cycle of living’, which begins as renting or shared accommodation. After a slowing growth rate due to border closures, the ABS (Australian Bureau of statistics) predicts we will be back on track with population growth projections. If predictions are accurate, our population will grow by 3.27 million people (12.7%) before 2032, which is an average of 301,000 people per year. Property shortage is going to be a big deal!

With state and federal governments only adding 3,000 of the currently required 50,000 dwellings per year, the balance of rental supply remains heavily dependent on you and me as private investors.

Which leads to the issue of stock supply. In 2016, almost 20,000 brand new apartment completions joined the Melbourne market. Given the above factors coupled with material shortages, developers have forcibly put projects on hold. Current estimations are that Melbourne will see less than 1,000 properties completed in 2024, further crippling the already shortage of property.

The national vacancy rate already sits at 1.1% and renters in some parts of the country are finding it almost impossible to secure a property. The pressure will mount and rents will increase or dare I say skyrocket!

Nationally, asking rents have increased by 1.9% for units (1.6% in capital cities) just in the past 30 days. The current shortage is already translating into increased surges across the country and with the focus, back on population growth, I’m predicting record high increases in market rent where the rental swing shatters the glass ceiling!!

Posted by Helen Matsoukas, on 22nd Mar 2022