Vacancy rate is often talked about in relation to rental cash flow—but did you know it can also signal where the next property growth hotspot might be?
Let’s break down what vacancy rate is, how it affects your cash flow, and why savvy investors watch it closely as an early sign of capital growth potential.
What Is Vacancy Rate?
The vacancy rate represents the percentage of rental properties in a suburb that are currently unoccupied. For example, if a suburb has 500 rental properties and 10 are vacant, the vacancy rate is:
10 ÷ 500 x 100 = 2%
Most people associate vacancy rate with cash flow—and for good reason. If your property sits empty, your income stops, even though your mortgage and outgoings continue. For investors who rely on stable returns, this can be a serious concern.
Why Vacancy Rate Matters for Cash Flow
A high vacancy rate often means more competition among landlords, which can drive down rents or extend vacancy periods. This can reduce your income and throw off your projected cash flow.
Here’s a simple way to factor vacancy rate into your cash flow projections:
Rental Income – (Vacancy Adjustment + Expenses) = Potential Cash Flow
By understanding the local vacancy rate, you’re better equipped to estimate your real-world return.
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Vacancy Rate as a Clue to Capital Growth
Vacancy rate isn’t just about rental performance—it can also serve as an early warning system for capital growth.
Here’s how:
Suburbs undergoing gentrification—with new infrastructure, cafes, schools, or upgraded transport links—tend to attract renters before they attract buyers. Renters are more mobile and react quickly to these changes. As more tenants move in, the vacancy rate drops. This lower vacancy signals growing demand, which typically precedes rising property prices.
Over time, investor interest picks up as they chase rental yields, and eventually, owner-occupiers arrive. Their demand—combined with limited supply—can lead to price growth. So, falling vacancy rates can be one of the earliest signs that a suburb is on the move.
What’s a Healthy Vacancy Rate?
- < 1%: Extremely tight market, strong rental demand
- 1–2%: Solid investment zone
- 3%: Considered market equilibrium
- > 3%: Oversupplied, weak demand
Most investors target suburbs with vacancy rates below 2%, but it’s important to watch how this rate trends over time, not just rely on a one-off data point.
Vacancy Rate Can Be Volatile
Vacancy rates can change quickly, especially in small or less active markets. Let’s say a suburb has just 100 rentals. If two properties are vacant, the vacancy rate is 2%. If two more become vacant, it jumps to 4%. But if all four are leased a few weeks later, it drops to 0%.
This kind of volatility is why it’s better to assess 6–12 months of historical data instead of relying on a snapshot.
Also, different data providers may use postcode-level data, which can cover multiple suburbs. Always check how the vacancy rate is calculated, and if in doubt, talk to local agents or property managers for a ground-level perspective.
Check out “Crunching the Numbers: Positive Cash Flow vs. Negative Gearing“
How to Calculate Vacancy Rate
To calculate vacancy rate manually:
- Count the number of rental properties in a suburb.
- Count how many are currently listed as vacant.
- Use the formula:
(Vacant Properties ÷ Total Rentals) x 100 = Vacancy Rate
You can access this data through public listings, online portals, or through platforms like the SuburbsFinder Dashboard, which provides vacancy rate data split by houses and units across 15,000+ suburbs.
Data Accuracy: A Word of Caution
Be cautious when using vacancy rate data. Here’s why:
- Data providers vary: Some aggregate data at postcode level, which can obscure suburb-level trends.
- Misleading listings: Property managers sometimes advertise tenanted properties as “available soon,” which inflates the vacancy count.
- Property types: Some suburbs may have drastically different vacancy rates for houses vs. units.
If you’re trying to identify a potential hotspot, it’s essential to drill down into suburb-specific and property-type-specific data.
“Get your Access to our Fully Customisable Investment Property Research and Analytics Tool Now!”
Vacancy rate is more than a rental income metric—it’s a potential leading indicator for capital growth. Suburbs with tightening vacancy rates could be poised for rising demand and increasing prices.
But don’t stop there. Combine this metric with others—such as days on market, stock on market percentage, and inventory levels—to build a clearer picture of suburb performance.
With over 15,000 suburbs in Australia (and double that if you count both houses and units), the key to finding true investment gems is comparing suburbs side-by-side. This is where tools like SuburbsFinder make it easy to identify high-potential locations in just seconds.
