Unit rents rise in Melbourne despite supply additions: APM

Unit rents in Melbourne increased in the March quarter despite recent additions to supply, according to APM’s March quarterly rental price series report.

Unit rents rose 2.9% in Melbourne over the March quarter, 3.8% in Perth, 2.2% in Sydney and 1.8% in Adelaide. Unit rents remained unchanged in other state capitals.

Nationally the median asking rent for units increased 2.2% in the three months ending March 2013.

House rents remained stable across the country, increasing 0.4% and unchanged in Melbourne. House rents rose 7.7% in Darwin over the quarter, 4.3% in Perth and 1% in Canberra.  House rents fell 3.1% in Hobart and remained unchanged elsewhere.

The unit rent rise in Melbourne came as a surprise to APM’s senior economist Andrew Wilson. Recent increases in apartment supply in the city should have mitigated any increase in demand. It was Melbourne’s first unit rent rise for quite some time.

Melbourne’s house rents, unchanged over the quarter, are 28% lower than in Sydney.

He says increased demand for unit accommodation will continue in Sydney and Melbourne driven by affordability constraints and lifestyle preferences but in Melbourne, new apartment growth will act to offset rental increases.

House and unit rents remained unchanged in Brisbane suggesting homebuyers are being activated by low interest rates and low entry-level home prices are taking some demand away from the highly competitive rental market.

Perth’s continued rent increases were driven by record levels of new arrivals seeking accommodation.

Perth median house rent is currently at $490 a week and looks set to overtake Sydney as the most expensive of all the major capitals.

Darwin remains the most expensive capital city rental market with house rents at $700 per week and units at $550 per week.

Wilson predicts rent increases will continue in Perth, Darwin and Sydney due to chronic shortages of housing.

He predicts rental growth in Adelaide, Hobart and Canberra will remain subdued over the remainder of 2013 “reflecting the under-performance of those local economies”.

“For investors, Perth and Brisbane are both performing well. Perth gross yields for units at 5.82% are the highest of all the major capitals with house yields at 5.20% just behind the leader Brisbane at 5.22%. Brisbane unit yields are just behind Perth at 5.55% with plenty of potential upside for capital gains in a recovering market environment.”