Brisbane November 2017

The month in review: Brisbane

By Herron Todd White
November 2017

We in the great south east have always viewed our rental market as reliable, steady and great for long term landlords. Rents seemed to increase with monotonous regularity. They’ve rarely shot up fast enough to scare away tenants. It was so harmonious you could almost hear gentle harp music playing in the background.

…and then the unit construction boom kicked in. The number of high rises constructed over the past few years in our CBD has been staggering. Compounding our current woes is, many were designed to appeal to investors – compact, functional for tenants, but a little unappealing.

Twelve month rental guarantees would help bring in the buyers in many projects, as tenants enjoyed the ‘new car’ feel of moving into a recently constructed tower. Happy days for the first 12 months, but then things changed. Tenants were able to rent jump where they would move after a year in one tower to a new building for the same, if not less, ¬dollars. This left empty units in their wake.

Late last year saw a confluence of factors result in the unit oversupply situation we currently have, where there’s too much stock for both sale and rent and not enough demand for either.

The result, our once steady rental market is taking a bump and we are seeing rents drop. Tenants are able to take their pick from a large pool of options and owners are offering everything from iPads and cashbacks to rent free periods in order to lock in a rent paying resident.

The split is such that good quality units, in well serviced and maintained building are doing OK – particularly those with a design that has a little more ‘owner-occupier’ appeal. The secondary quality stock… not so much.

In the CBD and inner-city suburbs, the typical rent for an average 1-bedroom unit is around $350 to $400 per week. Prime stock will do better, while secondary stock will do worse.

Along the same lines, 2-bedroom units will achieve around $450 to $550 per week.

Tenant types can vary with a concentration of students to be found in Fortitude Valley, parts of the CBD and South Brisbane. Young professionals (some of whom may be rentvesting landlords) seem to like Newstead and the better-quality CBD stock most.

The flow on from the oversupply situation is being felt in older stock too. There’s no denying landlords are having to drop their rent at renewal time in order to retain tenants. The smart ones do it early to avoid vacancies, because once a tenant hits the open market, there’s plenty out there to tempt them.

Heading away from town and into the north side of our city, you’ll find more detached housing available, but dominant tenant demographics tend to follow distance from the CBD and access to transport, education and employment nodes.

Middle ring suburbs such as Carseldine, Aspley, Chermside, Chermside West and Stafford/Stafford Heights see reasonable demand from itinerant workers and professionals looking for a bit of extra room. Demand from this group has steadied somewhat in recent months, much to the relief of landlords who had to take a bit of a hit earlier in 2017. Of course, the rise in vacancies at the start of the year prompted some owners to lower their rents, but we are seeing tenant demand steady now.

There is one group who seem to be making the shift from renting to home ownership. Professionals are starting to recognise the relative affordability of buying in our city (particularly compared to Melbourne and Sydney) so many are becoming first time buyers. We don’t have hard and fast numbers of this movement, but certainly it’s something we’re seeing on the ground in a qualitative way.

The inner ring northern addresses such as Wavell Heights, Kedron, Nundah and Kalinga appeal more prominently to owners, so tenants are rare – mostly they’re professionals. Rental yields on property in these locations aren’t great compared to suburbs further out so investors are buying for capital growth rather than return.

There’s also the big pool of renters in the far northern suburbs including the new estates. Places such as North Lakes, Griffin and Mango Hill etc. as well as the more affordable suburbs like Deception Bay, Kallangur and through to Strathpine appeal to tenants. With improved transport options making the daily commute a little easier, plus the comprehensive retail services available in these new estates, you can see why vacancy rates are OK.

Housing in the northern suburbs can see rents of around $420 to $550 per week achieved. One of the cheapest, inner north suburb rentals we’ve seen of late is 34 Victoria Street, Gordon Park for $300 per week. This 2-bedroom, 1-bathroom unrenovated abode would be well suited to those seeking location over aesthetics.

One of the best quality rentals we’ve seen recently in the inner north has to be 14 Rupert Street, Windsor for $2,200 per week. This beautifully renovated three-level character home with great city views has multiple living spaces and a pool for the tenants.

Overall in the north the market has steadied. It might be slightly weighted in the tenant’s favour, but rental property supply may start to tighten in response to the banks getting tougher on investor lending. While we don’t expect vacancy rates to plummet, they appear to have reached their peak for now.

Most of the middle-ring action in this stock sits in and around Chermside, Nundah and Kedron but these areas also need to deal with a touch of oversupply. Tenants are in the driver’s seat and landlords must be careful with their pricing. Some of our contacts are reporting attached housing being vacant for up to ten weeks with many offering incentives including gym memberships and removalist costs in order to lure tenants. Unfortunately for long-term owners, second-hand unit stock is being hit harder than new units, so they must get very competitive.

Interestingly, we are seeing a lot of the new townhouse construction being designed away from tenants and towards owner-occupier residents. These townhouses will have a larger floor area, higher quality finish, 2-car accommodation and even 4-bedrooms.

Certain suburbs provide accommodation bases for particular tenant types. Mount Gravatt sees plenty of demand from students and young workers with good access to retail facilities, easy access to the highway and reasonably strong public transport options. Sunnybank, Sunnybank Hills and Roberston find a place for the international student demographic. Here, landlords are looking at 1970s brick high set homes and renting multiple bedrooms over both levels. Renting out an investment room-by-room has proved a lucrative way to boost yield.

In the southwest around Sherwood and Corinda, were seeing an increase in unit and townhouse construction with young workers and students taking up leases. In these same suburbs, detached homes are appealing to families who can find reasonable accommodation at a fair rental and in close proximity to café hubs and other lifestyle facilities.

Tenant demand on the south side for all accommodation types is driven heavily by retail and transport with hubs such as hospitals and universities providing the tenant base.

In these hubs, however, unit supply is strong to the point of oversupply. Tenants are calling the shots and won’t haggle but will offer a take-it-or-leave-it price. In the short term, we expect rents to keep dropping in these locations, but only slightly.

If you’re a potential property investor looking for a slightly skewed silver lining in this grey market cloud, it’s that second hand unit values are dropping along with the rents, so your yields are, overall, holding steady (I warned you my logic was skewed).

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