Rise of 'professional tenants' a game changer for landlords

Melbourne is attracting a flourishing ‘professional tenants’ population, stimulated by strong interstate and overseas migration, in addition to locals who haven’t yet climbed onto the property ladder.

These powerful demographic trends are creating ongoing demand for rentals.

But there’s a catch for landlords; unless they tap into the skill set of a professional property manager to rent and manage their house or apartment, they’re unlikely to have the inside know-how to attract the right tenants and the best financial returns.

Nelson Alexander senior property managers say a growing proportion of renters are professional people who expect prompt levels of customer service.

This is leading to a seismic shift in the standards that apply to interactions between tenants and landlords, particularly as many more tenants today are “rentvestors” who own an investment property but choose to rent a place for living purposes.

“Professional people like to deal with a professional landlord,” says Grant Gifford, the head of Nelson Alexander’s property management operations in inner-city Melbourne.

“They prefer to have a rental property managed by real estate agency. Good quality, professional tenants, in my experience, are often concerned about having to deal with someone who is not in the industry.”

Mr Gifford says the number of professional people who are choosing to rent is on a growth trajectory in different parts of Melbourne, particularly in those areas close to the CBD or to transport hubs.

“We see a lot of people who are buying investment properties to rent out and then rent somewhere else for themselves.

“They may buy a property in a suburb they want to live in, but it may not necessarily be the exact property they would choose for themselves. Or they may buy in another area where they don’t want to live just now but they can see there is going to be capital growth, so they will buy a property in that area, rent it out and go on renting themselves in the inner-city.”

Rents in Australia’s two strongest real estate markets, Sydney and Melbourne, have risen significantly for apartments and houses over the past year.

In Sydney, rents for houses were up 4.8 per cent in the 12 months to June, while apartment rents grew by 3.8 per cent, Domain Group data shows.

Melbourne’s renters faced even steeper rent increases, with house rents up 5 per cent and apartments up 5.3 per cent in the same period.

What’s underpinning the growth?

One driving factor is more first home buyers are being priced out of the market, so they remain renters for longer – a bigger tenant pool brings more demand, and more demand brings higher prices.

Many developers are also rebuilding low-cost dwellings into higher-quality townhouses and apartments that are bought for higher prices by investors and rented at higher prices to tenants. A strategy that drives median rental prices upwards.

In the 12 months to March, Melbourne’s median weekly house rents rose $20 to $420 and the median unit rent increased $15 to $395. Vacancy rates have also remained low at 1.2 per cent for houses and 1.5 per cent for units over April, according to Domain Group data.

Mr Gifford says there was no doubt that Melbourne’s rental market had tightened, but rents were not rising dramatically.

“There is always demand for good quality properties.

“Good quality doesn’t mean brand new or the best of the best, it means neat, clean and in good working order. Professional tenants are happy to live in those properties.”

But professional tenants can be more demanding when it comes to maintenance issues and timely repairs.

According to Mr Gifford, more landlords are gearing up to maximise financial returns through better planning for repairs and property upgrades.

He says the key advantages for landlords who use Nelson Alexander’s property management services is that they can maintain a professional but arms-length relationship with tenants and take a planned approach to repairs and upgrades.

He adds that Nelson Alexander offices today see more interstate tenants who are often executives or white-collar workers.

Interstate migration is helping some landlords, working with their property manager, to lift yield.

“Rents aren’t as high in Melbourne as they are in Sydney, so Sydneysiders think they are getting good value for money when they look at properties here,” Mr Gifford notes.