Rent reductions for those with upcoming lease renewals may be possible in Melbourne and Sydney. However, research and an understanding of the current market are needed.
Vacancy Rates and Rents
It’s no surprise that market data is already showing increased vacancy rates and lower rents in rental properties in Sydney and Melbourne. However, in Canberra vacancy rates have in fact, declined. The chart below compares October 2019 with July 2020.
[Average of 10 suburbs in Melbourne and Sydney, 8 suburbs in Canberra]
Higher vacancy rates generally translate to lower rents. Average rents across greater Sydney have decreased by 7.8% for houses, 6.8% apartments across the past year; while in Melbourne the decrease has been 1.3% for houses, 5.8% for apartments. On the other hand, Canberra, Adelaide, Perth and Brisbane have seen an increase in average rents over the past 12 months and low vacancy rates.
What does this mean when renewing a lease?
Rent:
Renewing the lease can be an opportunity to seek a change in terms. With softening markets in Melbourne and Sydney, many landlords are keen to renew leases and retain paying tenants, especially in a climate of ongoing economic uncertainty. As the prospect of reduced government support looms, competition for paying tenants can be expected to increase. Just one month without a tenant is worth almost 10% of the annual rent so for a landlord retaining an ongoing tenancy is very attractive financially, even with a modest rent reduction.
Of course, not all landlords are willing to negotiate, and it can become a question of how much does the tenant wish to stay in the property rather than going to the trouble of finding somewhere else.
Term:
In renewing a lease, there is no obligation to renew for the same fixed term as the original lease. In the current level of uncertainty, it could suit many tenants to renew for shorter periods. On the other hand, locking in a longer period at a lower rent might be more attractive . Landlords are generally receptive, happy to keep a good tenant. Inclusion of a break clause (with 60 days’ notice) is a wise precaution (note that in New South Wales, recent changes to the law include break clauses in standard leases, although such clauses may be crossed out, so it’s crucial to check and seek advice if unclear).
It should be noted that if the required period of notice is not provided at the end of the fixed term, the lease will automatically renew on a monthly basis, until such notice is given.
Every case is unique.
When renewing a lease, a good relationship with the landlord should not be underestimated – it can help in surprising ways. Bear in mind private landlords may be hurting financially. A mutually beneficial outcome of rent negotiations would be a good outcome.
For advice and support
Elite Woodhams Relocation (EWR) lease renewal services range from telephone consultation through to help with negotiating the renewal. Please contact the team at enquiries@ewrelocation.com or call +61 2 9955 3300 for support and guidance.
[Sources SQM Research, Real Estate Institute of Australia, Real Estate Institute of New South Wales]