There were declines in all capital cities during the month, apart from Melbourne which showed a relatively large rise from 3.1% to 3.4%. Melbourne has also been the worst performer on an annual basis, with the vacancy rate up from just 2% a year ago, due to the additional and continued lockdown measures. Anecdotally many of the students and other foreign residents that have been the fastest growing cohort in inner Melbourne understandably remain absent from the rental market.

John Meagher, who is part of our advisory board and founder of Three Sixty Property Group, has been suggesting the other key trend highlighted by his sales evidence and the vacancy data is the shift from inner suburban living to outer suburban and regional living. This trend has a foundation in affordability but more recently has accelerated due to the consequences of COVID-19, including a preference for more space and neighbour “distance”, as well as the increased prevalence of working from home. Sydney’s Blue Mountains and Victoria’s Mornington Peninsular both saw their rental vacancy rates fall to a record low of 0.7%, and Queensland’s Ipswich fell to just 0.9%.

This demographic trend is a key factor in our current investment focus. We have been diversifying the Merricks Capital Partners Fund away from inner city residential construction lending for some time, and 22% of the portfolio is currently exposed to the residential apartment sector, down from over 50% a year ago. In addition to increased exposure to the agriculture and office sectors, we have also made moderate increases in lending to regional land subdivision, a sector which continues to perform well.

We were recently repaid on a land subdivision project in the Geelong corridor and the sales rates in the last 6 months of this project had outperformed our expectations, supported by the vacancy rate factors mentioned above as well as the incentive provided by federal government’s HomeBuilder program.

Some drivers of the current shift towards regional living and suburbanisation, such as remote working and desire for space, may not be permanent, particularly as migration levels return to normal levels in the coming years. There are more enduring elements of population shift, however, that will ensure the continued demand for regional and suburban housing and related services and infrastructure.