Yields remain low in Melbourne rental market

Historically speaking, the performance of last year’s rental market in Melbourne was relatively moderate.

In the last three months of 2014 the median advertised rent for a house in Melbourne increased by a minor 0.3% to $448 per week, the opposite to the -0.3% drop in the unit market.

September’s result is reflective of the broader performance of the rental market over 2014 where low rental growth and low yields persisted.

Over the course of 2014 house rents increased by 2.5% and units increased by 1.9%.

For houses, 2014 was not dissimilar to the past five years. On a annualised basis, rents rose by 2.5% in 2013, 1.3% in 2012, 2.7% in 2011. The only year that recorded a substantially different result was 2010 when rents grew 5.5%.

The unit market recorded similar results.

In many respects the rental market is following the changes in value seen in the ownership market. With the exception of the unit market, the last two years were similar and 2010 saw boom-like conditions.

Similar to the ownership market, the biggest question for 2015 is whether the growth in supply in the unit segment will further moderate advertised rents.

Yields remained low. For both units (4.2%) and houses (3.3%) the yield in Melbourne is the lowest of all capital cities. This does not seem to concern investors who are clearly focused on the longer term prospects for capital gains.

Key facts

• Median advertised rent for a house in Melbourne $448
• median rent for house rise 2.5% in 2014, units 1.9%
• Melbourne yields lowest of all capital cities