While it currently sits at what most would think is an acceptable level, the coming months could see an increase in Sydney’s vacancy rate according to the Real Estate Institute of New South Wales (REINSW).
The latest figures from the REINSW show that Sydney’s city-wide vacancy rate increased 0.4% to 2.1% during December.
The monthly increase was driven by a seasonal change in vacancies in the city’s middle suburbs, where the vacancy rate rose by 0.7% to 2.4%.
The vacancy rate in Sydney’s outer suburbs increased 0.2% to 1.9% over December, while the vacancy rate in the inner suburbs remained on hold at 1.8%.
But while the December increase has been put down to seasonal factors, the harbour city could soon see a further increase as stock comes online in the inner and middle suburbs.
“Come February and March a lot of those bigger apartment developments that are currently underway in the middle and inner suburbs are going to be finished,” REINSW president John Cunningham said.
“That’s going to see a lot more competition in those areas for tenants and I think we’ll see an increase in the vacancy rate as a result,” Cunningham said.
But while tenants will have more to choose from, Cunningham isn’t suggesting landlords slash their asking rents in order to attract a tenant.
“I think it any increase will probably just be for the short term. If the vacancy rate gets up to 2% or 3% it might mean some of those newer dwellings might be vacant for a month or two.
“That might hurt the first year returns investors were hoping for, but I think it will be short lived and the vacancy rate will come back down to between 1% and 2% where it’s been for a while.”
Cunningham said the new housing stock will be absorbed due to a number of factors.
“There will be a short term lag, but then it will be absorbed. A lot of it is through population growth and the fact that Sydney is still attracting people because of employment and those sorts of things.
“The other thing is that we’re seeing some stock removed in some suburbs. One suburb might get some new dwellings and then a neighbouring one loses some, which will help it balance out.”
While there is still a strong pipeline of dwellings for Sydney, Cunningham said the city is still undersupplied and investors shouldn’t worry that a flood of new dwellings will hurt prices.
“The impacts we’re going to see are location based. It’s not one thing for all of Sydney.
“At the most I think we might see a price correction of 5%, but I really can’t see anything more than that.”
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