Sydney apartment rents rose by 16.8% over the past year

The pace of rental growth has shown signs of slowing. 

Reflecting tight rental conditions, 2-bed apartment asking rents across Sydney have grown by over 16.8% over the past year. In a report, JLL said rental levels have long surpassed pre-COVID-19 levels. However, the pace of rental growth has started to slow, which likely reflects growing affordability pressures in many parts of the market.

“Due largely to the low number of listings in the existing housing market, Sydney apartment prices have grown by a strong 7.5% YTD in 2023. The affordability of apartments relative to houses also supported this growth,” the report added.

Here’s more from JLL:

The general Sydney housing market has recovered strongly in 2023, propelled by a lack of stock for sale in the existing market, which has been keeping auction clearance rates high. Buyer confidence was relatively strong, while affordability pressures pushed buyers toward apartments.

Apartment pre-sales across most of Sydney remained slow. However, smaller projects in premium locations were the exception and continued to attract strong interest from owner-occupiers, particularly downsizers that generally had a lot of equity and were interest rate insensitive.

Development remains challenging

Few larger apartment projects are proceeding to construction, particularly in Western Sydney where project feasibilities are particularly stretched. With only smaller boutique projects progressing, supply is likely to remain moderate for at least several more years. Interest in BTR projects remains high, but development is still very challenging given Sydney’s high land prices.

A strong rebound in migration and foreign students has helped Sydney rental vacancy fall to a low 1.3% in September 2023 (SQM Research). This has seen a return to the level of extreme levels of difficulty securing a rental and displacement seen in many areas of Sydney prior to the pandemic.

Outlook: No supply relief in the short term

Demand for apartments is expected to increase further, supported by record levels of migration. Particularly high prices for detached houses should also support more demand in the lower price point apartments. With supply unable to meet this rising demand, Sydney’s apartment market is likely to tip further into a position of under-supply.

In the absence of supply relief, affordability may be the only constraint on the high rate of growth in rents. The rebound in existing dwelling prices may start to slow in the near term as market conditions improve and more vendors are encouraged to list their properties, increasing stock availability in the market.

Note: Sydney Residential refers to Inner Sydney apartments. Price and yield data sourced from CoreLogic. Rental data from JLL Valorem. Vacancy data from the Real Estate Institute of New South Wales.