No end in sight for rising Australian apartment rents

Apartment rents across Australia are expected to rise by 28% between now and 2028, according to new CBRE forecasts.

CBRE’s Apartment Vacancy and Rent Outlook examines 53 precincts in Australia’s major capital cities.

The median rent for a two-bedroom apartment across these precincts is expected to grow by $155 per week between 2024-2028. A 30% increase is forecast across 25 precincts over the next five years, including Sydney’s Eastern Suburbs, Parramatta, Melbourne Inner East and North, almost all precincts in Brisbane and North-West and South-West Perth.

CBRE’s Pacific Head of Research Sameer Chopra noted, “In 2013, just four precincts in Australia had an average rent of over $600 per week for two-bedroom apartments, those being the Sydney and Perth CBDs, Sydney’s Eastern Suburbs and Sydney’s Lower North Shore. By June 2023, this had grown to 20 precincts and by 2028 we expect 41 precincts - or over 75% of Australia’s two-bedroom apartments - to have a rent exceeding $600/week.”

“Unfortunately, some of the potential apartment supply has been trimmed and pushed out. This has seen a 9% reduction in potential supply over the period from 2023-2028, this is what has contributed to our growth forecasts.”

CBRE Research forecasts that capital city apartment vacancy will fall to 0.8% by 2028 from 1.8% in 2023 with Mr Chopra noting that this will be one-third of the previous decade's 2.5% average.

“A balanced market for apartment rentals would typically see vacancy around 4-5%. We estimate an incremental 90,000 apartments are needed, over and above the current absorption rate of circa 170,000 – 200,000 houses and apartments per annum.”

Some of the markets expected to see the sharpest falls in vacancy include suburbs near Sydney’s Eastern Suburbs, including the Inner West and Lower North Shore, Melbourne’s Inner East and Southeast suburbs, Brisbane’s Southeast and North Gold Coast suburbs and North Canberra.

The vacancy situation is tight (sub 1%) in large parts of Adelaide, Melbourne and Perth and CBRE forecasts this to continue over the next five years.

Mr Chopra said he still expected the cost of renting to remain more affordable than purchasing across Australia’s major cities.

“Monthly rent payments are currently 22% cheaper than alternate buy options across most precincts in Australian capital cities. We don’t think this is just because of higher mortgage rates, given that monthly rental costs were 30% lower than monthly mortgage repayments in 2018 and in December of that year the RBA’s cash rate was 1.5% compared to 4.35% in December 2023.”

Two-bedroom apartment rents across Australia’s major precincts

EASTERN SEABOARD OUTLOOK

Sydney: Apartment delivery to average 14,500 per annum over 2024-28, well below the 33,000 per annum demand for housing stock. Vacancy is set to fall from 2.2% to 0.7% and average rent growth of 5% per annum to 2028 is anticipated.

Melbourne: Apartment delivery to average 10,000 per annum over 2024-28, nearly 40% below Sydney. Demand for housing stock, is likely to average 37,000 over the next five years. This should continue to drive down city-wide vacancy from 1.7% to 1.0%.

Brisbane: Apartment delivery to average 5,200 per annum over 2024-28. Demand for housing stock, is likely to average 18,000 per annum, which will drive down city-wide vacancy from 1.1% to 1.0%.