Vacancy Rate Metric Explained

Vacancy rates are a key indicator of the rental market. They essentially tell you how easy it is to find tenants in an area, and investors use this information when deciding whether or not to invest there.

The best markets for property investing have low vacancy rates; these areas offer great opportunities due to high demand with little supply – meaning that renters will be more likely than usual to pay higher rent just because they can’t find something else close by!

Investors should keep their eye on vacancies though: if too many properties go vacant at once then rents could drop as landlords try harder and compete against each other for potential tenants.

The chart below illustrates Sydney Vacancy Rates for years 2017 to 2019. It shows that Sydney rates were trending up during the 2-year timeframe.

What is a good Vacancy Rate?

Typically, rates above 3% indicate low demand markets. Property investors should target high demand rental markets to ensure continuous cashflow uninterrupted by tenant churn.

As a rule of thumb markets with lowest possible vacancy rate is the safest bet for investment. Some capital growth focused strategists may consider markets with vacancy rates above 3% if other supply and demand metrics indicate a balanced or high demand market.

Learn more about the ranges for low, balanced and high demand markets by visiting our Data Dictionary page.

How do you calculate Vacancy Rates?

To calculate the Vacancy Rate, divide vacant rental properties by the total number of rental dwellings in the suburb.

  • Vacant rental properties are those that remain listed on the market for more than 21 days.
  • Rental dwellings are estimated by apportioning the percentage of renter households to the total number of dwellings in the area.
  • HtAG Analytics receives monthly data updates on the total number of dwellings from Geoscape.

Days on Rental Market (DoRM)

Rental properties typically rent in a month, but this is not always the case. For example, some suburbs take over 30 days to get rented out. Additionally, units stay listed on the market for longer than houses do – sometimes up to three months instead of just one!

DoRM distribution
It takes longer to find tenants for vacant units in the current market (Q2 2021)

Property investors should target markets with DoRM below 35 days.

Vacancies

Vacancies are rental listings where the real estate agent has not found a tenant 21 days or more after the property was listed for rent.

High demand and/or low supply rental markets frequently have 0 vacancies since tenants ‘grab’ all properties way before the 21 day threshold.

25 vacancies within a suburb is the threshold for balanced rental market. The lower the number the better, so target markets with the lowest vacancies possible.

Both DoRM and Vacancy metrics are sub-components of the Vacancy Rate metric formula. We recommend to rely on these metrics only when the Vacancy Rate is unknown.

Data Science Team, HtAG Analytics


Conclusion

Vacancy rates are a key indicator of the property rental market.

Upward trend in Vacancy Rates is excellent news for tenants, as higher percentages typically signal that rents will not climb as quickly, or even decline.

High vacancy rates usually point to low demand markets. If you’re an investor looking for your next property, you should be targeting markets with lower rates.

Download suburb Vacancy Rates from our digital store to learn more about how this data can help inform your investment decisions and find out which suburbs have higher demand!

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