Report | Intelligent Investment

Apartment vacancy and rent outlook – 1H 2024 edition

March 24, 2024 6 Minute Read

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Rent outlook:  CBRE expect median rents to grow by $155/week (+28%) between 2023-2028, across 53 precincts in Australian capital cities. A number of precincts are likely to see mid/high 30% rental growth.

We expect capital city vacancy will fall further to 0.8% by 2028, from 1.8% in 2023. These tight conditions will endure as vacancy stays at around 1/3rd  of the previous decade average of 2.5%.

 

Demand to rent:  Over the next 10 years, demand for housing is expected to benefit from the triple boost of rising population (+3.9m), rising jobs (+2.6m) and rising income (+$36k). We see c$860bn of additional income in the system to support mortgage, rents and other living expenses. 

Monthly rents are 22% cheaper than alternate buy options at current prices. Mean-reversion of interest rates, to say 2-2.5% level, could see relative rental affordability retained as capital values rise. 

 

Supply:  CBRE forecast the future supply of apartments to range from a high of 70,000 (expected in 2026) to as low as ~60,000 in 2025 and 2027. Australia’s forecast population growth requires apartment supply of ~75,000 pa to avoid further falls in vacancy. 

 

Construction and capital value: Historically, capital values have grown at 3x construction cost growth. This unlocks land and encourages supply. But in the past 3 years, construction costs (+37%) have out-stripped value growth. In our view, capital value for residential projects will accelerate significantly higher to ensure a healthy ecosystem for developers.