Wave of returning foreigners to put pressure on inner-city rental markets

As Australia plans to welcome back the international tenant, currently sleepy inner-city rental markets are preparing to make a comeback, with experts cautioning local renters to lock in a lease while they still can.

Australia may have closed its international borders in March 2020, but with vaccination rates reaching the targeted 80% of adults aged 16 and older, an influx of foreign visitors is imminent.

Demand for rentals is expected to surge, sparking a reversal of fortunes for inner-city neighbourhoods that resembled ghost towns in the wake of the COVID-induced exodus of tenants.

Over the past 18 months, rental markets – especially in locked-down cities – have suffered as a result of collapsing demand.

Realestate.com.au data comparing views per listing in April 2020 to August 2020, near the start of Victoria’s first lockdown, showed large decreases in Melbourne, with inner-city enclaves, Stonnington West and Stonnington East experiencing drops of more than 26%.

There were also record-high vacancy rates in Melbourne, reaching 4.7% in December 2020, while they climbed to 4% in Sydney in May 2020, according to SQM data.

“The inner-city market has been hit by two trends. One is people have moved out to the regions because they want more space and to work from home, but also there have been less students renting near universities,” explained PropTrack economist Angus Moore.

“A good share of international renters in Australia are international students living in the inner city or areas close to universities. We’ve seen rents in those areas underperform in the last 18 months.”

However, Mr Moore said the return of the international renter, especially students, will reinvigorate major city rental markets.

“As we see international students return, that’s going to start to flip. We’ll see demand for those inner-city rentals and university-adjacent rentals return and so we may see some of that underperformance start to revert.”

Local tenants had the pick of the litter in some city markets

Throughout the pandemic, tenants have had a variety of choices when it comes to finding a dream rental.

Without the competition from international renters and an exodus of locals from the cities to the regions, landlords were willing to offer top deals to secure a tenant, including discounted rent.

“When the pandemic first started we did see the majority of international renters return home overseas, this saw a sharp increase in vacancies,” said Kristen O’Connell, the business manager of Jellis Craig Stonnington, Richmond and Surrounds.

“Naturally, as the supply increased and the demand decreased, rental providers were left with a much smaller pool of prospects and so they needed to entice tenants – this is of course done by lowering the weekly rent,” Ms O’Connell explained.

Ms O’Connell even saw some renters move to cheaper and often better rentals within the same building, taking advantage of rapidly changing market conditions.

However, she said as lockdown lifted in Melbourne, she has already witnessed more activity within the market.

“When you break down the micro markets of Melbourne, there are some particular types of properties that have suffered, such as apartments in the city, however, the good news is that as restrictions have eased, they are recovering well.”

What will the return of the international renter mean for local tenants?

As more renters from overseas return to Australian shores, experts say a change in inner-city market conditions will follow, which could make securing the top deals currently available to locals much more difficult.

“As international renters return to the market we will see a higher demand for properties. This will naturally create a more competitive environment and, in turn, we expect to see rents increase,” said Ms O’Connell.

She advised renters currently looking for a home to start seriously considering what is available now, rather than waiting for the perfect property to appear.

“Those who are needing to secure a property by a set date should be cautious in this environment, especially if they are waiting for that perfect property. They may need to compromise at some point to avoid disappointment. We are already seeing a more competitive market in Richmond for some apartments.”

The first chartered plane carrying about 250 students from 15 nations is scheduled to touch down in Sydney on 6 December, with a second planeload due on 24 December.

The New South Wales pilot plan to revive the international student sector included universities and independent higher education providers, prioritising already enrolled students.

Laing+Simmons Kingsford principal Dean Efrossynis said an increase in renters in the market was welcome news for inner-city landlords in Sydney.

“Good news for people who provide rental accommodation in these markets has been a long time coming, so the imminent return of students will be a welcome sight,” said Mr Efrossynis.

“Suburbs such as Kingsford, Kensington and Randwick have been impacted, and not just in terms of rising vacancy and hardship for mum-and-dad investors who rely on their investment properties for income.

“The local communities themselves, which are traditionally diverse, vibrant and fun places, have not offered people the same experiences.”

*Original source realestate.com.au