The vacancy rate is a measurement of the number of rental properties that are vacant in a particular area at the time of counting, which is commonly used by investors as a tool to assess the attractiveness of property.
Vacancy rate data is supplied by a number of industry bodies and is calculated by comparing properties that are available for rent (vacant) to those that are classified as investment properties.
Once the vacancy rate has been determined for a particular area, it can then be used as a tool to assess whether that area is experiencing a high or low vacancy rate at that time.
Higher vacancy rates indicate a greater number of vacant or untenanted properties in an area. With a higher number of rentals available, many investors believe it may prove more difficult to obtain a tenant due to increased competition.
Areas with high vacancy rates are also knows as a ‘renter’s market’ as they have more power to negotiate cheaper rent due to a lack of demand, which can deter investors considering properties in such areas.
Low vacancy rate markets are characterised by a lower number of untenanted properties available. Rental competition is often higher and rental prices are likely to be elevated. Due to demand, landlords are often spoiled for choice when selecting tenants – otherwise known as a ‘landlord’s market’.
Vacancy rate data is available at city level as well as suburb level so you can gain a good insight into the specific area you are considering. Often, the vacancy rate of a particular suburb may be completely different to that of the city in which it is located so it is important to consider both statistics.
Vacancy rate data over time can also give a good indication towards trends in the areas. For example, if the vacancy rate of an area is gradually increasing, that may suggest that demand is decreasing which may be less desirable for investors. Likewise, a vacancy rate that is gradually falling may indicate an increase in demand which is attractive for investors.
It is important to keep in mind that as informative as the vacancy rate is, it is not an all-encompassing indicator as to why you should buy in a particular location or not.
Namely, the vacancy rate does not provide any indication as to the vacancy rate according to dwelling type. For example, you may find an apartment in a particular area with a low vacancy rate only to find out that potential renters interested in the area are families looking for four bedroom homes – therefore rendering your property less desirable.
Used in conjunction with the many other property indicators available, having a good understanding of what the vacancy rate means for a particular area will place you in a good position when considering your next investment.
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