Rental vacancies for properties less than R12,000 decline in Q3 2024 — report

There has been a decrease in vacancies for rental stock with a value of less than R12,000 a month in Q32024, according to the TPN Vacancy Survey Report Q3 2024.

The report showed that: 

- in the R3,000 or less a month rental value band, vacancies dropped from 10.97% in the second quarter to 6.89% in the third quarter

- in the R3,000 to R7,000 rental value band vacancies declined from 6.75% to 5.8% in the third quarter. In this rental value band, the demand remains strong, even though more rental units are now available.

- the R7,000 to R12,000 rental value band recorded the lowest vacancies at 3.4% in the third quarter, down from 5.51% in the previous quarter.

On a national level, rental vacancies declined the second and third quarters of 2024 from 6.72% in the second quarter to 5.07% in the third quarter.

Average residential rental vacancies for the first three quarters of 2024 were 5.4%, the lowest since the TPN Vacancy Survey was first published in 2016 while the overall positive performance is expected to remain in the mid 5% mark for the remainder of 2024, with rental growth accelerating in the fourth quarter.

Waldo Marcus, Marketing Director at TPN from MRI Software said that the residential rental market continues to perform strongly while there is a high demand for rental properties as new supply is slower to come online.

"Post-election economic sentiment is positive, with improved confidence and economic indicators. The second interest rate cut in November 2024 adds to the positive outlook, offering relief to tenants and property owners," he said.

"S&P Global's upgraded outlook for South Africa and potential structural reforms could lead to lower government borrowing costs, stimulating economic growth and addressing unemployment," Marcus said.

"While unemployment decreased slightly in the third quarter of 2024, the number of discouraged workers increased, highlighting the need for a strong job market to support the residential rental market.”

According to Marcus, stable employment is essential in order to maintain low vacancy rates but high interest rates are also not ideal.

“Although high interest rates discourage consumers from purchasing property, they also have a negative impact on property owners who may need to compromise on high rental growth to ensure that tenants stay in their properties and pay their rent promptly," Marcus said. 

As an interest rate cutting cycle commences, some tenants may make the shift towards property ownership which could result in a rise in residential vacancies for the higher rental value bands.

“We expect that consumers will need time to recover adequately from the recent volatile economic landscape. Added to that, as property investors start to raise rentals, it could act as an obstacle to tenants saving to enter the property market as owners.”

One of the reasons for lower residential rental vacancies is higher demand in comparison to supply. 

TPN’s Rental Market Strength Index which measures the market's perceived demand and supply of residential rental stock across various property types, values, investors and portfolio sized lowered from 60.36 points in Q2 2024 to 58.97 points in Q3 2024.

Marcus said: “Although demand continues to outweigh available supply in the rental market, the index reveals a slight decrease in demand and an increase in supply."

According to the report, the luxury rental market is under pressure with higher vacancies.

Vacancies in the rental properties priced between R12,000 to R25,000 increased from 4.52% to 5.93% due to declining demand but consistent supply.

Although the luxury rental market continues to show strong demand, increased vacancies could be early signs of market migration.

Residential units with a price tag of R25,000 or more a month saw an even bigger vacancy increase from 7.16% in the second quarter to 12.03% in the third quarter, despite less luxury stock being available.

The Western Cape continues to record the lowest vacancy rate of all provinces which can be attributed to a very low supply rating of 38.37 points and a high demand rating of 88.12 points.

Rental increases are highest in the Western Cape which can positive for property investors but it could price lower-income households out of the market. The vacancy rate decreased in all the other provinces in the third quarter.

IOL Property