Typically investors consider the vacancy rate of a target area, identified as the number of untenanted properties divided by the stock of properties available for lease. For example, if there are 15 properties empty in a particular suburb and there are a total of 500 rental properties in the local area, the vacancy rate would be 15 / 500 x 100 = 3%
Vacancy rates are considered to be ‘in balance’ at 3% this is because there are always people between moves, houses being renovated or repaired etc., Anything less than 3% is considered ‘ tight’ and implies that it shouldn’t be difficult to find and keep a tenant. It may also be a predictor of the likelihood of rent rises in the future.
It is also important to keep in mind that the vacancy rate for an area is a generic measure.
Vacancy rates can vary for different types of properties. For example, a new university opens up and the vacancy rate for large homes with large gardens is 6%, which is an unattractive proposition but the vacancy rate for 1 and 2 bed apartments in the area, plummets to 0.2% because of all the new students coming in to the area looking for accommodation!
Townhouses may have a vacancy rate higher than the apartments but way less than the houses. It is important to choose a property type that suits the predominant and changing demographic of the area.