Rents hit by oversupply of property

First National's quarterly property managers survey last week showed typical winter rental market conditions are exacerbated this year by the economic downturn.

First National Group General Manager John Stewart said apart from a few pockets around the country, supply continued to outstrip demand providing plenty of choice for tenants.  Some areas have double the usual rental supply although a general shortage of quality rental property was noted.

"Property managers are reporting more tenants downsizing, reducing work travel distances or moving into shared accommodation due to tight economic conditions.

"Demand for lower end properties is helping stabilise rents but we are seeing new tenancy reductions of up to $50 per week for higher end properties in some areas including Auckland, Coromandel, the Bay of Plenty and Christchurch," Mr Stewart said.

Places most difficult to get tenants in the past three months were Waiheke Island (vacancy rate of 21%) followed by Ashburton (vacancy of 18%) and Whangamata (vacancy of 14%).  

Corresponding rent reductions for new tenancies in these places were up to 7.5% - 10% per week.

Tenant demand was strongest on the West Coast (vacancy rate just 0.5%), Taupo (3% vacancy), Taranaki (3.6% vacancy).

Rents over the past quarter increased on the West Coast (portfolio rents up 8.3% from average $210.70pw to $243.64pw) and Hawera (average 4% increase for a 3brm property), with rents in Taupo stable.

As usual in winter, colder and older homes were difficult to fill, with warmer, drier properties being let quickly.

Stewart said economic conditions meant unless they were downsizing or relocating for a job, people were choosing to sit tight rather than incur additional costs associated with moving.  

"A  number of metropolitan offices report increasing numbers of tenants calling in to announce they have lost their jobs and cannot not pay rent for a week or two.  

"Of anecdotal interest is the appearance of University and Polytech-tenanted properties falling vacant at the end of the first semester recently and not being picked up for the new term.  Perhaps more students are either ceasing their studies or moving home to Mum and Dad," Stewart added.

"Landlords are taking comfort with low interest rates and less expensive acquisitions.  

However, with a shortage of listings and a supply of buyers, landlords might do well to consider selling as first home purchasers continue to dominate real estate activity."

Summary by region:

• Northland - Increasing residential vacancy rates over past three months to 8.6%.  Rents down by average of 1.6%
• Auckland - Static or increasing residential vacancy rates, currently over 9% average.  Rents down an average of 5%.
• Central North Island (Bay of Plenty, Rotorua, Taupo) - Higher than usual vacancy rates in Bay of Plenty and Rotorua but short term work projects keeping Taupo rental market stable.
• Lower North Island ( Taranaki, northern Wellington, Manawatu) - Vacancy rates reducing, rents stable with the occasional increase.
• Upper South Island (Nelson, Blenheim) - Rent drops of $10 - $40 pw
• Christchurch - Has double the usual number of rentals available (more than 1600 currently advertised on TradeMe).  Rents are dropping by average of 5%.  
• West Coast - Lowest vacancy rate at 0.05%, portfolio rents increased over 8%.
• Lower South Island (Alexandra, Invercargill):  Rents are stable.  Invercargill still has the cheapest city rents (averaging $200pw for a 3brm house) which have remained stable over the past quarter.