Anyone with even a passing interest in property investment has heard about vacancy rates.
But what exactly are they, how do they work and what do they tell investors about the state of the property market? We explore everything you need to know about vacancy rates.
What does the vacancy rate measure?
The vacancy rate is a statistic used to measure the amount of rental properties that are untenanted and on the market at any one time. It is expressed as a percentage and is calculated by dividing the total number of rental properties by the number of rental properties listed for rent.
For instance, if there were 1,000 rental properties in an area and 50 were listed for rent, the vacancy rate would be five per cent.
Most property data organisations compile statistics monthly so to be considered vacant a property generally has to be un-leased for three weeks.
Why should investors care about vacancy rates?
Weekly rents are largely set by the laws of supply and demand. The vacancy rate is considered one of the best barometers for measuring where the balance between supply and demand lies.
A low vacancy rate usually shows there are a lot of people looking to rent compared to the number of properties available. This means there is greater competition for those properties that are on the market and the power lies with the property investor. As a result, landlords and renters could expect rents to start increasing.
If vacancy rates stay low for some time and it puts pressure on rents, this can often also have an effect on sales prices. That’s because more investors begin to enter the market, looking for a return on their money.
A high vacancy rate shows that tenants have a lot of properties to choose from and can be more selective about what they choose. It also gives them more power when it comes to negotiating the rent. This can have a flow-on effect in the market and rents could start to fall more generally.
Most property investors consider a rate of around three per cent to be an average vacancy rate and the sign of a neutral market.
What’s the vacancy rate in Perth right now?
The vacancy rate across Perth is currently at a record low.
The latest REIWA data shows that vacancy rates across the Perth metro area are under 2% – or half the rate they were the same time two years ago. That’s great news for property investors who may start to be able to charge more rent, as well as for Perth property prices more generally.
One of the main reasons for today’s low vacancy rate is that there is less stock available for rent at the moment. REIWA data shows that the number of listings for the week ending 11 October 2020 was less than half of what it was 12 months ago.
Weighing against this, however, is that uncertainty around COVID-19 means fewer renters are in the market right now too.
What does the low vacancy rate mean for you?
If you’re a property investor, today’s low vacancy rate means you’re likely to be able to be more selective when you’re screening for a tenant. If there is enough competition for your property you may even be able to command more rent.
Eventually, we should start to see rents rise across the board and could potentially see property values increase.
If you’re a tenant looking to rent, it’s important that you put your best foot forward. Make sure you have all your ducks lined up before you inspect property – that your referees and finances are in order.
That way, when the right property comes along, you’ll be ready to pounce.
If you have any questions contact our team of experienced property managers today.