Why tenants should understand vacancy rates
Every quarter, the REIQ gathers and publishes Queensland’s average vacancy rates across the state’s various regions.
Primarily, this is done to inform investors, agencies, and property managers of the conditions of the various rental markets.
But there’s a key demographic who may not pay enough attention to their local vacancy rates: renters.
Whether you’re looking for your first rental property, or currently renting, being aware of your local area’s vacancy rates, and the ramifications that they have, will give you vital information to influence how you approach the rental market, and how you negotiate with landlords or property managers.
Using vacancy rate jargon, rental markets are typically referred to as weak, healthy, or tight.
In a market where the percentage of empty rental properties is between 0 and 2.5, the market is considered tight. In such a market, there’s greater competition between prospective tenants as they vie for the few remaining vacant rental properties.
A vacancy rate between 2.5 and 3.5 per cent is considered healthy, while anything above 3.5 is noted as weak.
In a weak rental market, landlords are forced to compete with one another to have their properties tenanted, because tenants have a greater supply of properties to choose from.
As such, tight rental markets typically see higher weekly rents, while weaker markets will present lower rents.
For prospective renters, this is worth knowing to get an idea of what to expect to pay in rent, thus helping with budgeting.
More importantly though, it gives tenants an idea of how they should approach negotiations with their landlord or property manager.
For example, in a tighter market, proposing a lower rent at the commencement of the tenancy is unlikely to yield a result. The owner is aware that it won’t be difficult to find a different tenant if the one in question decides the property is out of their price range, so there’s no real pressure to concede to the lower figure.
This doesn’t necessarily mean that the tenant can’t ask the question, as it’s unlikely to do much harm, but they can at least be aware that such a request is unlikely to get far.
Similarly, a tenant who is renting in a tight market might be less likely to be successful when requesting upgrades like air-conditioning, new flooring, repainting, and other non-essential maintenance. The owner knows that if the tenant leaves as a result of not receiving their desired upgrades, it won’t be difficult to find a new renter.
Again, this doesn’t mean the question shouldn’t be asked – the worst a landlord could say is ‘no’ after all.
Conversely, someone looking for a property in a weak rental market is going to have a lot more bargaining power. In general, rents should already be lower due to the high vacancy rate, but they will have more success than those in tight markets when it comes to negotiating a lower rent. Owners in weaker markets are more eager to find a tenant, so may be willing to accept a slightly lower rent if it guarantees an occupied property.
The same is true for non-essential maintenance requests. An owner being asked to install an air-conditioning unit is going to give it more consideration if it means their tenant will renew the lease in an already weak market. There could be some back and forth, such as the tenant offering to pay slightly more rent, or cover the cost of installation, but overall the chances of success are better when vacancy rates are higher, if only because landlords are more concerned about losing tenants.
In the healthy vacancy rate range of 2.5 to 3.5 per cent, negotiation is more even. Tenants aren’t fighting one another for a place to call home, but landlords aren’t dropping rents and renovating bathrooms in the attempt to land a tenant. Asking for reduced rent or home upgrades will depend entirely on the request, the tenant, the property, and the nature of the landlord.
It may not be the be-all and end-all, but having knowledge and understanding of vacancy rates offers tenants, both current and prospective, vital information about their rental costs, and likeliness of having their maintenance requests adhered to.
Keep across real estate news and REIQ’s communication channels to stay informed about vacancy rates across Queensland.