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Rental demands to remain high despite rising vacancy rates
According to REA Group’s latest market insight, national vacancy rates increased by 0.19 per cent in January, reaching 1.48 per cent, its highest point since February 2022.
Despite the easing of rental conditions, vacancy rates remained significantly below the levels seen in 2021, when the national rate was above 2 per cent.
REA Group senior economist Anne Flaherty said that, though the market had begun to improve late last year, there had not been a significant shift overall.
“Conditions for renters have improved over the past three months, though they remain largely unchanged from a year ago,” Flaherty said.
“They are significantly below the conditions renters faced during the pandemic five years ago, when the national vacancy rate was sitting at 2.3 per cent.”
Flaherty told REB that there was a “good chance” that vacancy rates would continue to improve through 2026, though the change would likely be gradual.
“I don’t think we are going to see a very strong recovery. I think vacancy rates are likely to remain very tight throughout the rest of the year.”
She said that the slight uptick in vacancy rates was not a “tides turning” moment.
“At the moment, renters face very tough conditions in most markets.”
“But I think this should help to slow the pace of rent growth.”
Capital outlooks
Hobart was the capital city with the tightest rental market, recording a vacancy rate of just 0.72 per cent, despite the largest jump in January, rising by 0.36 percentage points (ppt).
Perth and Brisbane were the next tightest markets, with vacant rental rates at just 1.11 and 1.13 per cent, respectively.
“While the pace of rent growth has slowed across most markets over the past year, continued low vacancy rates are expected to drive rents to new highs in 2026, particularly in markets where supply is constrained, such as Hobart, Perth, and Brisbane.”
“In Hobart, not enough new homes have been built; there are just very few properties available for rent.”
“When properties do come on the market, they’re pretty hotly contested.”
Melbourne had the highest vacancy rate across the capitals, with a 0.22 ppt rise, seeing 1.81 per cent of rental properties sitting empty as of January 2026.
This is despite the Victorian capital suffering the largest drop in vacancy over the previous five years, falling by 2.68 ppt.
“With the highest vacancy rate of any capital city, renters in Melbourne are facing greater rental availability.”
Sydney recorded a minor shift in vacancy rates over January, rising by just 0.1 ppt, which Flaherty said meant supplycontinued to be an issue for Australia’s most expensive capital.
“Even though NSW is home to the highest share of investment in the country, the cost of investing in the Sydney market can be prohibitive for a lot of investors.”
“It also takes much longer to save a deposit to buy a home in Sydney compared to every other capital city.”
“So that actually keeps people renting longer.”
Outside the cities
Additionally, the data found that average vacancy rates in capital cities were higher than in regional areas, with a 1.51 per cent margin above the regional rate of 1.4 per cent.
Flaherty said the tightness in regional rental markets was driven by several factors, including lower levels of investor activity and high migration away from the capitals.
“Investors are generally less active in regional areas compared to capital cities.”
“A lot of regions are still seeing reasonable population growth, and the supply of new homes is not keeping up.”
She said the lack of investor activity in regional markets was likely due to their perceived risk relative to the capital cities.
“Some regional areas may be dependent on a specific industry, and if something were to happen that hurts the industry, it could lead to reduced population and decreased demand.”
“Whereas in a capital city area, you’ve got a more diverse local economy and demand for property is less impacted by one specific industry,” Flaherty concluded.