Sydney's rental market appears to be slowing as vacancies start to rise again, according to the Real Estate Institute of New South Wales.

Overall vacancies in Sydney rose to 4% in March, significantly higher than February’s 0.9% rate.

"This rise brings vacancies in Sydney to their highest level since October 2020. Many REINSW members are reporting that the residential rental market has slowed again across Sydney," said Tim McKibbin, CEO of REINSW.

Vacancies across Sydney regions increased, with the middle-ring region striking the highest level at 5.8%, followed by the inner ring's 4.5% and the outer ring's 2.5%.

"Property managers are telling us that there are fewer properties coming onto the market and those that do are taking longer to rent. Older properties in need of upgrading are problematic, as tenants are becoming more and more discerning about where they choose to live," McKibbin said.

Outside Sydney, vacancy rates dropped substantially in both Newcastle and Wollongong, down to 0.7% and 1.6%, respectively.

REINSW data also showed that the rental conditions across the rest of regional New South Wales remained "extremely tight".

"Rates in the Central West, Mid-North Coast, Northern Rivers, Orana, Riverina and South East areas all dropped in March,” McKibbin said.