Understanding the Importance of Vacancy Rates

Understanding rental vacancy rates is crucial for property buyers and investors in Australia, and with the national property vacancy rate currently sitting at 1.3% this statistic is proving to be a useful tool for buyers. Vacancy rates are more than just a number, this rate will offer insights into market dynamics, which are able to influence decisions on property purchases and investment strategies. However, any buyer must proceed with caution. Looking at vacancy rates alone can be misguiding, which is outlined in our discussion below.

What is the vacancy rate?

When we refer to the “vacancy rate”, we are referring to the percentage of rental properties that are unoccupied at a given time. It is calculated by dividing the number of vacant rental properties by the total number of rental properties, then multiplying by 100. For example, if a suburb has 1,000 rental properties and 10 are vacant, the vacancy rate is 1%.

How are vacancy rates determined?

Vacancy rates are derived from data on rental listings and occupancy status. Organisations like SQM Research and the Australian Bureau of Statistics (ABS) provide reliable and relevant data that is collected and then analysed to provide insights into rental market conditions. These rates are updated regularly to reflect the current market dynamics. There is a national rate that gives an overall view with how vacancies are tracking nationally, however the tool is particularly helpful when we analyse the vacancy rate to compare between suburbs.

Using vacancy rates for property investors

For investors, vacancy rates can be a valuable metric to determine if the market you want to invest in, has a healthy rental market. Markets with a low vacancy rate will correlate with high demand for rental properties. This suggests the market is strong and has good potential for steady rental income. Conversely, high vacancy rates may signal an oversupply of rental properties or declining demand, which could impact rental income and property values.

But it’s not only rental income that is impacted.
Vacancy rates can also be a reflection on how popular the market is, and whether the is an influx of population into the area. Very low vacancy rates would indicate that demand for properties outweighs the supply. When demand is higher than supply, this will also drive up the property prices in the area.

As rental prices increase, there are more tenants that may decide its more affordable to buy than to rent, which will put more upward pressure on property prices.

To use vacancy rates as a reliable analysis tool, it is important that it is used alongside other economic indicators, so that investors can better navigate the property market and optimise their investment outcomes.

Useful tool for Investors

Investors can leverage vacancy rates to:

• Assess Rental Demand: Low vacancy rates suggest strong rental demand, reducing the risk of prolonged vacancies and ensuring consistent rental income.
• Inform Pricing Strategies: Understanding local vacancy rates can help investors set competitive rental prices, balancing profitability with market demand.
• Guide Investment Decisions: Investors can identify high-demand areas with low vacancy rates for potential investment opportunities.
• Property Prices:Vacancy rates can give an insight into the market demands, which help to predict which direction property prices are headed in that area.

How vacancy rates impact property prices

Vacancy rates can influence property prices. Low vacancy rates will often lead to increased rental demand, which can drive up rental prices and, subsequently, property values. Conversely, high vacancy rates may lead to decreased rental demand, potentially lowering property values.
As a comparative tool, this rate can also be used to compare suburbs. Factors such as location, amenities, and local economic conditions contribute to these differences. Investors should analyse vacancy rates at the suburb level to make informed decisions.

Are interest rates and vacancy rates linked?

The short answer is yes, Interest rates and vacancy rates are interconnected. This is because when interest rates rise, borrowing costs will increase, which will potentially slow down property investment and development. This can lead to a reduced supply of rental properties, affecting vacancy rates. Conversely, lower interest rates typically will stimulate property developments, and investors, which increases the supply of rental properties and can impact vacancy rates.

Current Vacancy Rates in Australia (as of June 2025)

According to SQM Research, the national vacancy rate in Australia rose slightly from 1.2% in May 2025 to 1.3% in June 2025. Here’s a breakdown by major cities:

• Sydney: 1.6%
• Melbourne: 1.8%
• Brisbane: 0.9%
• Perth: 0.8%
• Adelaide: 0.8%
• Canberra: 1.5%
• Darwin: 0.5%
• Hobart: 0.6%

These figures indicate tight rental markets in several cities, particularly Darwin and Hobart, which have the lowest vacancy rates nationally.

Proceed with caution!

As can be clearly seen, Darwin and Hobart have critically low vacancy rates with Hobart constantly attracting investors, but you must proceed to any of these markets with extreme caution, because this indicator may only be an initial sign of rental demand, not profitable returns.

When deciding where to invest, you do not only look at vacancy rates alone.
Others factors such as infrastructure, population growth, valuations, comparable sales, and any upcoming developments will indicate increases in supply, rental yield, capital growth, and time on market.

For example, if you find a location with a very low vacancy rate, like Darwin, this only means there’s a lot of demand for rental properties. However, it doesn’t mean that the area has increasing capital values and is not an indicator that there is upward pressure on property prices. This is where some investors will get caught out.

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