Cautious investment keeps rental market stable as vacancies hit record low of 5.07%

• Residential rental vacancies hit a low of 5.07% in Q3 2024, with strong demand outpacing slower new supply.
• Interest rate cuts and improved economic sentiment offer relief, but higher rents may hinder tenants' ability to transition to ownership.
• Luxury rental market faces rising vacancies, especially in properties priced above R12,000, signalling potential migration to more affordable options.

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TPN Credit Bureau's latest Vacancy Survey Report reveals that rental vacancies decreased to 5.07% in Q3 2024, down from 6.72% in Q2. This marks the lowest vacancy rate since the survey's inception in 2016. TPN predicts the positive trend will continue with rental growth expected to accelerate in Q4 2024.

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Report Key Insights:

• High Demand, Low Supply: The national vacancy rate continues to benefit from high demand, with limited new supply entering the market. The Rental Market Strength Index, which tracks supply and demand, slightly dropped from 60.36 to 58.97 points, showing demand still outweighs supply.
• Subdued Rental Growth: Although vacancy rates have decreased, rental increases have not kept up with inflation. High interest rates continue to limit property investment, but cautious supply levels have helped prevent a rental market bubble.
• Luxury Rental Market Softens: Properties with rents above R12,000 have seen an increase in vacancies, particularly in the R25,000+ rental category, due to a combination of steady supply and declining demand. This indicates potential market migration as tenants opt for more affordable options.
• Regional Trends: The Western Cape continues to see the lowest vacancy rate, driven by high demand and low supply, leading to the highest rental increases. However, this is pricing out lower-income households.

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Action Points for Investors:

1. Focus on well-priced, well-located properties: Investors should prioritise properties in high-demand areas that are competitively priced to maintain occupancy.
2. Monitor high-end rental markets: Given the increased vacancies in the luxury sector, investors should approach high-end property purchases with caution as demand in this segment softens.
3. Prepare for ongoing supply constraints: Due to economic uncertainty and interest rates, new rental supply will remain limited, keeping vacancy rates low and rental growth subdued.

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As Waldo Marcus, Marketing Director at TPN, notes: “While the lack of supply has prevented a rental bubble, it could lead to lower rental increases and higher vacancy rates, especially in the luxury segment.”

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Despite challenges, cautious investment strategies remain key to navigating the evolving rental landscape.

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