Never a dull moment they say in the Sydney Rental Market. Investor sentiment going up and down like a yo-yo, gentrifications and demographic movements, new airports and infrastructure worth billions, migration number fluctuations, international investor tariffs, credit crunches and lending tightening and – if that wasn’t enough – the combination of developers hellbound on building 10’s of thousands of new properties and a “certain” virus, have certainly conspired to make what can only be described as “once in a lifetime” conditions. This Spring tenants will be on the move and landlords should start preparing themselves with having to find themselves a new tenant!
And boy hasn’t Covid-19 and an oversupply of apartments brought changes this Spring in a way that no other combination of events has done in recent times on the Sydney Rental Market… You don’t believe me? Here are the raw facts.
On one hand, there are over 50,000 apartments and units currently under construction across NSW and judging by the cranes on the sky, a lot of these are in Sydney.
Thousands of new apartments and units are currently under construction in Sydney!
On the other hand….
- Border closures mean very little domestic and international migration. Migration, which has been the bloodline on the demand side of the supply-demand rental market equation in recent years, has fallen off the cliff,
- White collar and/or temporary worker movement in Sydney have all but disappeared, adding airbnb and short term accommodation properties on to an already oversupplied market, and
- International and domestic university students have gone into hiding and student accommodation is now minimal! My 19 yo UNSW Med Science daughter has only been to University on a handful of occasions since March, attending most of her lectures and classes from home!
And it doesn’t stop there as new forces are now in existence, complicating matters even more! Some tenants are now looking for bigger properties away from the Sydney CBD, given that everyone works and spends more time at home! Subconsciously many are preparing for another lock-down and are desperate to secure themselves a bigger property. And consciously (the opposite of subconsciously), many are after that “extra room” to use as their office when working from home. The good news I am seeing consistently at the moment, is that houses have become more desirable, as are townhouses and larger apartments!
Houses, townhouses, villas and larger apartments have become more desirable in recent months!
Until earlier this year, the rental market trend had clearly seen a move towards lifestyle choices at the expense of space! That meant that suburbs that had direct access to transport and proximity to work were always popular with tenants. This is why CBDs (where most of the jobs used to be) and by extension Sydney CBD and Middle Ring suburbs (most of which have great transport systems) have been very popular…. Tenants were happy to sacrifice space at home to be close to work and where the action used to be. ONE bedroom apartments and studios therefore were a great option!
Enter 2020 and the pandemic announcement! In a few short weeks, everyone works from home and home can be everywhere… and as for “lifestyle”, that sadly is not as important as once was!
The tenant pool has decreased and lifestyle and proximity to work, are no longer important!
So what does that all mean for the rental market in Sydney this Spring, I hear you ask?
First of all, I want to let you in on a secret: some tenants are becoming smart shoppers. They realise that it is easy to compare the properties in the areas they are interested in and they know how to find real value for money in the current market. Moving out 2 or 3 suburbs on the fringes of Middle Ring suburbs is all of a sudden not a bad idea!
And this is how I know this… Refer to the graph below. This is from a campaign for an apartment I am running right now in a popular but overdeveloped Middle Ring suburb.
The campaign has been running for 2.5 weeks. It is a well run campaign, very successful judging by the views of my ad as compared to the competitors! The red bars are my ad views every day, the grey line is the average number of views of the competing properties!
The property has been priced appropriately… We have had over 600 views so far – which is a great result – and 53 prospective tenants have saved the ad and are watching it! And yet, after close to 10 Opens, only 7 of them have come through! That means that the other 45 (give or take) are now watching the property and the market.
The truth is that some tenants are sophisticated, often more sophisticated than landlords in my experience! This is because tenants are constantly in the market looking at their options and being price sensitive in the current environment, with the better weather conditions, THEY ARE LIKELY TO BE ON THE MOVE SOON.
And why is that? Because as a great couple tenants of ours said… why wouldn’t we move 2 or 3 suburbs out where we can get better value for money?
And there lies the truth…. The apartment market in the Sydney CBD and Middle Ring suburbs is now under extreme pressure. Tenants can see that by sacrificing location and going through the pain of moving houses, there could be better options on the outer suburbs! Yes they may have to go out 2 or 3 suburbs, but their current rent could secure them a better and bigger property!
Some tenants are smart shoppers and are looking for value for money in the outer suburbs… If they are willing to sacrifice location, the abundance of new properties due to reduced demand and increased supply will give them better options!
50,000 new apartments under construction, in conjunction with reduced demand has created an apartment tenant’s market. And what is worst is that this is likely to continue for the next 6 or so months as new apartments continue to enter the market! Look… I get it…. new construction is good for employment, but at some point it will start to hurt some of us landlords in other ways.
So what should you do? If you are a landlord of an apartment in Sydney, my advice to you is to be mindful. Look after your tenants. Don’t be too picky. Allow pets, fix their broken appliances quickly and be reasonable with the rental price. I know I am and I have no issue looking after my tenants’ wishes as I prefer to have them in my property until the dust of the Covid-19 fallout settles and the tables turn once again!
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