In sobering news for tenants but good news for property investors, a global real estate firm is warning that it expects strong rental growth for Australian capital city apartments through to 2030, while a worsening shortage of well-located units will see vacancy rates continue to fall.
The forecasts are contained in CBRE’s latest Apartment Vacancy and Rent Outlook report, which has revised down the number of apartments it expects to be built in Australian cities from predictions it made in 2023.
CBRE’s forecasts don’t bode well for government efforts to ease the housing crisis, or for the national plan to build 1.2 million well-located homes by mid-2029, which is heavily dependent on the building of more high-density homes such as apartments in “in-fill” urban areas, already well served by infrastructure and transport.
The details
CBRE says it expects median rents to grow by a large 24% between 2025-2030, across the 53 apartment “precincts” it surveys in Australian capital cities.
That’s an average of 4.8% rent growth a year and well above current and forecast inflation out to 2030.
It says this follows 51% rental growth in those precincts over the last decade.
The international real estate giant says, over the next 10 years, it expects demand for housing will benefit from what it calls “the triple boost” of rising population, rising jobs and rising income.
CBRE says it expects Australia’s population to grow by 4,100,000 people over the next decade, creating 2,800,000 new jobs and adding $39,000 to average annual incomes by 2035.
It also anticipates that this boost of about $960 billion of additional income will support mortgages, rents and other living expenses.
However, it forecasts the future supply of apartments is likely to hover around 60,000 annually in the period between 2025-30, while it says “Australia’s forecast population growth requires apartment supply of ~75,000 pa to avoid further falls in vacancy.”
As a result, it expects vacancy rates in Australian capital cities to tighten further, falling from the current 1.85% to just 1.1% by 2030.
“These tight conditions will endure as vacancy stays at around half of the previous decade-average of 2.5%,” CBRE says.
The international real estate firm says a "balanced market for apartment rentals would typically see vacancy around 4-5%”, but it points out that for “most markets, vacancy has remained below 4% during the previous decade, except for the 2020/21 lockdown periods.”
As a result, by 2030, CBRE says 92% of 2-bedroom apartments are forecast to have rents exceeding $700/week, with 33% commanding rents exceeding $1000/week.
CBRE also believes that strong tenant demand will continue for apartments, because monthly rents for two-bedders are still 30-40% cheaper than buying an equivalent well-located unit at current prices.
“After accounting for on-costs such as municipal rates and strata fees, it is cheaper to rent in all precincts across Australia,” it says.
And while new units are more expensive than existing stock (CBRE cites the example of a newly built two-bedroom apartment being at a 30% price premium to ones in older buildings), it says higher rents for buildings with better amenities will assist investors “in meeting the return hurdles for newly built apartments.”
Looking at specific cities, CBRE says it forecasts building projects in Sydney will only deliver an average of about 11,700 new apartments a year between 2025 and 2030.
That’s well below its estimated demand of 30,000 new homes needed each year in the Harbour City.
As a result, Sydney’s vacancy rate is forecast to fall from 2.0% to 1.2% by 2030.
CBRE says it expects to see the sharpest falls in vacancy in Sydney’s Eastern Suburbs, the Lower North Shore, the Northern Beaches and Parramatta areas.
In Melbourne, CBRE expects only 9,000 new apartments will come on line each year between 2025-30.
On the other hand, it says demand for new homes (both freestanding and units) is likely to average 38,000 per annum in the Victorian capital over the next 5 years.
As a result, the shortfall “should continue to drive down city-wide vacancy from 2.1% to 1.4%.”
CBRE forecasts vacancy rates in Melbourne’s Inner East and South-East Suburbs, including the Bayside area, will be extremely tight.
The situation for renters in Brisbane looks even more bleak.
CBRE’s Apartment Vacancy and Rent Outlook report says it expects an average of just 4,600 new apartments per annum out till 2030.
Meanwhile, city-wide demand for new homes is likely to average 16,000 per annum, which will drive down vacancy rates in the Queensland capital from an already low 1.1% to 0.7%.
Pointing to potential opportunities for investors, CBRE says in more than 160 suburbs across Sydney, Melbourne and Brisbane, renters outnumber owner-occupiers, with tenants making up more than half of the residents.
“Suburbs where renters are the biggest cohort of residents include Parramatta, Waterloo, North Sydney, Collingwood, Parkville, Fitzroy, Spring Hill, Newstead, and St Lucia.
“Suburbs where the renter pool sits just below 50% include Randwick, Punchbowl, Epping, Box Hill, Sunshine, Kensington (Melbourne), Highgate Hill, Milton, and Cannon Hill,” CBRE says.
“Several of these suburbs sit along new transport corridors like Sydney’s Metro, Melbourne’s Suburban Rail Loop, and Brisbane’s Cross River Rail, and CBRE sees potential for the renting population in these areas to increase as infrastructure, density, and investor interest converge.”