High-end property feels rental pinch

The rental vacancy rate at the top end of Australia’s capital city property markets has climbed but cheaper locations remain tight, SQM Research has found.

Australia's capital city rental vacancy rate was 3.5 per cent in March, with Sydney recording the highest vacancy rate at four per cent, SQM founder Louis Christopher says.

Perth and Canberra have the tightest rental markets, sitting at just 1.1 per cent vacancy rates.

A three per cent vacancy rate is widely considered to represent a balanced market.

"Vacancy rates overall have been very steady so far this year," Christopher says. "We had been expecting a rise in vacancy rates to occur due to over 40,000 renters turning themselves into first homebuyers. But to date the influx hasn't hit the market as hard as we thought it might."

Vacancy rates are higher in inner-urban areas compared to outer-suburban locations in most capital cities, Christopher says.

"In Sydney as an example, the CBD is recording a vacancy rate of over eight per cent," he says. "However, the highest vacancy rates in the country are clearly in Sydney and Melbourne's affluent suburbs, with vacancy rates over 10 per cent not uncommon.

"Clearly, upper-end property investors are facing the harsh reality of property value declines and falling rents. This should really not be a surprise to anyone given that we're in a recession. The upper end of the property market has always been very discretionary based.

"However, what this does mean is that resources should be deployed to encourage developers to build at the affordable end of the market, where historically there has been minimal returns for them."

API publishes SQM's vacancy rate data by postcode every month.