Melbourne’s High Value Rental Market
There is much commentary and dissecting of the position of the broader rental market. However, there is little narrative in relation to the higher value rental segment, which we would generally class as any long term occupancy (as opposed to a short term or corporate stay) commencing from circa $1,000 per week.
Accompanying the increasing depth in the high value sales environment has been the progressive emergence and now establishment of a high value rental market. With two bedroom apartments commencing at close to $1,000 per week and three bedroom apartments from $1,500 per week, this sector addresses the requirements of a tightly defined, well informed, sophisticated cohort of tenants seeking accommodation on top-end buildings.
Historically the concept of a high value rental market was vague and essentially restricted to the corporate sector. The corporate rental market has segmented over time, with proportionally reduced activity at the very top echelons (exclusive buildings) of the market, and increased focus around aspirational and established high quality buildings that are of requisite location and quality, but represent underlying value relative to their clients’ needs.
The demographic profile of high value tenants is broad, encompassing but not limited to the following parties:
- High net worth individuals familiar with apartment living and seeking a part-time city residence to compliment their lifestyle, but without the financial commitment of a purchase at the required level of capital.
- Transitional residents embarking on a change in lifestyle away from traditional housing towards an apartment, but seeking to ‘try before they’ buy, both in terms of testing the apartment lifestyle and also the merits of a specific building before making the financial commitment of an outright purchase. This cohort can include returning former ex-pats seeking a base from which to deliberate their next move.
- Global Roamers, being professionals who are constantly travelling and seeking a low maintenance, highly secure residence from which they can base their activities.
The increased activity in the high end rental market can be attributed to many factors, although has arisen fundamentally from a deepening in demand from a growing numbers of individuals, couples and families with the required means, and the emergence of a greater number of buildings containing apartments of suitable character to support higher end tenant requirements. The former is a natural consequence of a growing city, the later of a gradually maturing apartment market.
Interesting, but not unsurprisingly, higher value tenants seek security of tenure. Accordingly, the proportion of leases executed for terms of two years or longer is significantly higher than across the broader market, often negotiated with specific conditions and clauses reflecting the commercial nature of both the landlord and tenants, together with the circumstances and objectives of all parties.
Our exposure to high calibre buildings across the central city and city fringe provides a direct representation of the deepening demand within this shifting segment, with over 40 apartments leased in excess of $1,000 per week over the past 12 months, and some select residences leasing at in excess of $3,000 per week for between two and five year lease terms.
Our objective in assisting both sides of a transaction is to ensure all requirements and considerations are met. We are engaging in a a deeper level of conversation with landlords in relation to their objectives and critical considerations, with one theme of paramount importance at this level of the market…the requirement for the agent to understand that the tenant is a custodian of a significant asset, not a cashbox.
There is a significant difference between the two concepts that in the majority of high value leasing deals, should be kept mutually exclusive.