Residential rental vacancies decreased between Q2 and Q3 2024 resulting in a national vacancy rate of 5.07%, down from 6.72%.
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. TPN expects the overall positive performance to remain in the mid-5% mark for the remainder of 2024 with rental growth accelerating during the fourth quarter.
“The residential rental market continues to perform strongly with rental properties still in high demand as new supply is slower to come online,” says Waldo Marcus, Marketing Director at TPN from MRI Software.
Stable employment is essential to maintain low vacancy rates, he explains. “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.”
One of the reasons for lower residential rental vacancies is higher demand compared to supply. TPN’s Rental Market Strength Index measures the market’s perceived demand and supply of residential rental stock across various property types, values, investors and portfolio sizes. The index declined from 60.36 points in Q2 to 58.97 points in Q3 2024. The market is in equilibrium at 50 points while an index above 50 points means that demand is stronger than supply.
“Although demand continues to outweigh available supply in the rental market, the index reveals a slight decrease in demand and an increase in supply,” says Marcus, adding that demand has decreased for three consecutive quarters. Supply showed a downward trend until Q3 2024, when the supply rating increased from 54.51 to 55.5 points.
The TPN Vacancy Survey Report for Q3 2024 reveals that rental stock with a rental value of less than R12 000 a month all decreased in vacancies in Q3 2024. In the R3 000 or less a month rental value band, vacancies dropped from 10.97% in Q2 to 6.89% in Q3 while its market strength improved to 60.11 points, up from 59.95% in the previous quarter. Similarly, the R3 000 to R7 000 rental value band decreased in vacancies from 6.75% to 5.8% in Q3 with a marginal decline in its Market Strength Index driven by an increase in the supply rating and a small drop in the demand rating. The report reveals that demand remains strong, even though more rental units are now available in this rental value band. The R7 000 to R12 000 rental value band recorded the lowest vacancies at 3.4% in Q3, down from 5.51% in the previous quarter. Overall demand decreased slightly while supply increased, resulting in an overall Market Strength Index of 56.13 points, slightly below the overall national average of 58.97 points.
The luxury rental market, on the other hand, is under pressure with higher vacancies. Vacancies in rental properties priced between R12 000 to R25 000 increased from 4.52% to 5.93% due to declining demand but consistent supply. Although this sector continues to show strong demand, increased vacancies could be early signs of market migration. At the top end of the market, residential units with a price tag of R25 000 or more a month saw an even bigger vacancy increase from 7.16% in Q2 to 12.03% in Q3, despite less luxury stock being available.
The Western Cape continues to record the lowest vacancy rate of all provinces, attributed to a very low supply rating (38.37 points) and a high demand rating (88.12 points). Rental increases are highest in the Western Cape. While this is positive for property investors, it could ultimately price lower-income households out of the market. The vacancy rate declined in all the other provinces in the third quarter.
“Despite strong demand for residential rental property, investors have been cautious about increasing supply due to economic uncertainty and high-interest rates. While a lack of supply has prevented a potential rental bubble, it may lead to lower rental increases, higher vacancy rates and increased tenant defaults. The downward trend in completed residential buildings suggests that supply will continue to be limited,” he concludes.
