The current market is providing challenges to investors, including high vacancy rates, depressed property prices, reduced net migration, tough economic conditions, and shifts in student accommodation patterns.
For property owners, staying being aware of these factors is crucial for making sound investment decisions. Below, we outline the key factors currently impacting the market.
High Vacancy Rates
High vacancy rates are a key concern for property owners, driven by an oversupply of rental properties in certain areas —a recent example being 11 two-bedroom units available in Petone alone.
Recent Trade Me data highlights the issue, with listings up 6% month-on-month, reaching a 10-year high, while demand is at a four-year low. New developments, though still a solid investment, now face increased competition in a saturated market, making it harder to attract quality tenants.
Additionally, shifting demographics and changing lifestyle preferences, such as students staying longer in halls of residence, are diverting potential tenants, particularly in student-heavy areas like Wellington City.
Falling Prices and Low Demand
The combination of high vacancy rates and lower demand for properties is driving prices down with both Auckland and Wellington seeing prices fall more than eight per cent, especially for larger rental properties.
With fewer prospective tenants willing or able to pay higher rents, owners need to adjust their expectations to avoid a longer vacancy period.
Impact of Net Migration & Economic Uncertainty
When fewer people move into a region, the pool of prospective tenants shrinks, leading to higher vacancy rates. Also, in times of economic uncertainty, some people choose to move in with family, or sometimes relocate to areas with more affordable living, further reducing demand.
Supply and Demand Imbalance
At the heart of the current rental property market is a classic supply-and-demand imbalance. While there is an oversupply of properties, demand has been sluggish due to factors noted - lower migration, changing tenant preferences, and shifting economic circumstances. As a result, landlords are seeing longer vacancy periods.
Shifting Patterns in Student Accommodation
One interesting development, particularly here in Wellington, where there is a high concentration of students, is the shift in student accommodation patterns. The appeal of long-term stays in halls of residence, which have increased or proposed to increase their capacity, has diverted a significant portion of the student rental market who would otherwise be out hunting for a house or apartment in December/January, placing pressure on landlords with properties near universities, or those designed with students in mind or who previously relied on university students. Students now have a broader range of more affordable, purpose-built accommodation options catering to them.
Airbnb and Short-Term Rentals
The short-term rental market is not immune to the downturn, with data showing from Airbnb seeing a decline in some areas, with fewer tourists, fewer people traveling for business, and fewer people booking stays.
What Can Landlords Do?
With falling prices and increasing vacancy rates, it may be necessary to adjust your strategy to attract tenants if your property is vacant in the current rental market. Your property manager will keep you informed about the market, provide feedback, and offer recommendations on the rental price they believe your property can achieve to attract potential tenants. They may also suggest strategies to help rent your property, such as offering one or two weeks of free rent, a grocery gift card, or considering pet-friendly options.
