Skyrocketing Rents in Australia’s Capital Cities

Australia’s inner city suburbs have experienced very high rental growth over the past year. Inner city suburbs provide the best combination of capital growth potential and growth in rental yields for investors and property investment. In this article, we look at some of the top performing suburbs for various capital cities.

Top Performing Suburbs

The latest data from the property group RUN show that Sydney experienced some of the highest growth in rental yields over the last year. The average weekly rent across the city is $534.

• Sydney. The highest performing suburb in Australia was Sydney’s Neutral Bay. Rents grew by more than 12 per cent in the year to August 2011.
• Sydney. Steep growth was observed in Glebe, Randwick, and Potts Point. These suburbs saw growth of more than 11 per cent over the course of a year.
• Melbourne. In Victoria, Armadale, Glen Iris, and Kew were the top performers. These three suburbs each saw a rise of at least 10 per cent in rents.
• Melbourne. Other top performers in Victoria included Fitzroy, Essendon, Fairfield, Brunswick, and Moonee Ponds. These suburbs experienced rent rises of 9 per cent or more.
• Brisbane. Brisbane’s top performers were Nundah (5.9 per cent), Clayfield, St Lucia, and Logan Central. Except for Nundah, the other suburbs saw rent rise at least 5 per cent.

Sydney’s western suburbs are also seeing spikes in rental yields, according to research by MacroPlan Australia. Suburbs such as Blacktown and Penrith have gross yields of around 6 per cent, which is higher than some inner city Sydney suburbs. Behind the growth in rental yields is a market where demand is exceeding supply.

Inner City Living

A 2010 Property Council report found that of the New South Wales suburbs yielding 6 per cent or more in rental yields, 59 per cent were found in the inner city as opposed to regional areas or suburbs further out from the city.

While some regional areas – such as the mining and resource districts of the Bowen Basin (QLD), Whyalla (SA), and Kalgoorlie (WA) – have recently experienced excellent rental yields, they can be highly volatile for investors. Mining and resource areas are heavily dependent on the single local industry for growth and expansion and values can fluctuate significantly when industry conditions change.

Investment property in high performing inner city suburbs allows investors to take advantage of capital and rental yield growth opportunities. Access to infrastructure and facilities and reduced commuting times make it attractive for both empty nesters and those in younger age brackets to rent close to the city.

Houses, Units, or Apartments?

Units and apartments tend to be more affordable than houses to rent and to purchase. For renters in the younger age group and those without families, renting apartments or a unit represent less upkeep and maintenance.

For renters who are unable to purchase their own property, smaller properties are cheaper to rent than large properties. Investors can look to balance gross rental yields with potential for capital growth.

While gross rental yield figures are calculated on the basis of the suburb, individual property performance can be higher over time.