Inner city rents may recover as travel bubbles open

by Mike Wood26 Apr 2021

As Australia considers opening travel bubbles with other nations, hope is building that the return of international students could reinvigorate the rental markets of Sydney and Melbourne.

Both of Australia’s largest cities currently have vacancy rates that sit above the recommended 3%, creating a poor market for investors, especially given the spiralling costs of property in big cities.

However, as the pandemic eases, there is the potential for international students, who make up a large portion of the inner city rental market, to be allowed in via travel bubbles, especially with vital Asian markets such as Singapore, Taiwan and Japan.

The pandemic devastated part of Sydney’s rental market, according to Raine & Horne Group’s National Manager, Property Management, Maria Milillo.

“It has had a significant effect,” she said. “In some areas – Pyrmont and Newtown, for example – some rents for units have been down 20% on some properties. What I’m hearing is that, for some properties, the returns during the time since the start of this year have slightly improved, but it’s the one-bedrooms and the studio apartments that have been hit hard and still haven’t had any growth. There seems to be quite a bit of stock on the market for those type of properties.”

“The two-bedroom properties that might suit an executive are now starting to move because, I think, people who were living further away have moved closer to the city. Some unit types are now getting more occupants, but those that are focussed on the students, the one-bedrooms and the studios, that are getting hit. They’re still impacted by the pandemic.”

Travel bubbles may be the shot in the arm that the rental market needs to get back on its feet.

“It’s really important for those markets, and will affect landlords.,” said Melillo. “As soon as the borders open and students start coming into Sydney and Melbourne, we feel like those properties that have traditionally been occupied by them will start to fill up. It probably won’t happen all at once and will be a gradual thing.”

“I think once the first country starts to let students in, and if we’re able to do that well, that will gradually mean the return of other countries, with Australia having more agreements to bring students in. Slowly, slowly we will get there, but we need that first country to make an agreement so we can trial it and bring confidence.”

“Especially for investors: there are very few investors in those markets right now, and that suggests that it isn’t a good time to buy at the moment because they aren’t getting strong returns and there’s no certainty that they’ll find a tenant. So it’s hard to identify it as a good investment opportunity.”