Traditionally, fully furnished properties have mainly been offered as holiday homes and short-term rentals. However, there is an increasing demand for longer-term leases on well-appointed properties in prime locations. Tenants are also increasingly willing to pay a significant premium for the convenience of a turn-key renting experience.
Here we explore the appeal of fully furnished units to both renters and property investors. As part of this, we take a closer look at recent changes in the market for fully furnished rental properties. We also share a few real-world examples of the additional value offering your property fully furnished can provide.
The demand for fully furnished properties is growing
Over the last few years, the rental market has really delivered for property investors. As vacancy rates fell to record lows in many areas, significant upward pressure was placed on rents. This meant quality properties were being leased quickly and providing healthier than usual rental yields.
However, the sustained increases of last few years appear to have come to an end, with growth in rents plateauing. While there are several reasons for this, most experts agree that this is at least partly due to decreasing demand. Many analysts also believe we have reached an “affordability ceiling”, with many renters either unable or unwilling to pay more.
But, while the general rental market may be slowing, there is one segment which remains strong – fully furnished units. As interest in unfurnished properties declines, the demand for a turn-key rental experience has become more pronounced. Renters are also much less resistant to paying a premium for the flexibility and convenience of a fully furnished property.
Fully furnished properties cater to a niche market segment
It goes without saying that not every renter will be drawn to a fully furnished property. In fact, the majority of renters already own most of the furniture they require. As such, a fully furnished property would actually create logistical issues for them.
However, this is definitely not the case for every renter. For example, professionals relocating for new work opportunities usually do so with little more than the clothes in their suitcase. Similarly, those seeking short-term alternative accommodation – like during a home renovation – usually don’t want to move all of their stuff.
For these tenants, a fully furnished unit provides a level of convenience and flexibility that is truly invaluable. It eliminates the hassle and expense of having to buy household essentials, like bedroom suites, dining sets, appliances, and electronics. It also minimises the effort required to move in and move out, allowing them to focus on more important activities.
Acknowledging the benefits they provide, these tenants are usually willing to pay a significant premium for a fully furnished property. As such, simply providing the basic items a tenant requires can increase the value and desirability of your property. This is particularly true for studios and one-bedroom units in desirable, inner-city locations.
Would you like to receive our weekly investor newsletter?
JOIN OUR WEEKLY INVESTOR NEWSLETTER
Short-term vs long-term rentals
Many investors assume that fully furnished units will achieve greater returns when offered as holiday rentals or short stay accommodation. This is based on the knowledge that most properties can achieve a higher nightly rate when listed on sites like Airbnb. However, when you factor in the additional management costs, and higher vacancy rates, longer term leases are usually more profitable.
For example, we recently sold 35/59 Whaling Rd – a fully renovated studio apartment in North Sydney. Prior to sale, this property was listed on Airbnb, achieving an average return of $507 per week, with a 72% occupancy rate. This equates to a gross annual income of around $26,350.
However, the same unit would achieve $565 per week if offered fully furnished on a 6 or 12 month lease. Even with 2 weeks of vacancy a year, this would provide a gross annual income of $28,250. This represents a rental yield of 6% – significantly outperforming the average Sydney apartment rental yield of 4.1%.
It is also worth noting that there is a growing community resistance to units being listed on sites like Airbnb. In Sydney, the number of owner’s corporations prohibiting the use of individual units for short stay accommodation is rapidly increasing. We are also seeing jurisdictions across the country introducing taxes and other restrictions on short term leasing.
The potential of a fully furnished rental – a real-world example
Another great example of what fully furnished units can achieve is 6 Cecil St, Paddington. This former retail / office space was recently converted into a boutique boarding house, comprising 20 executive studio apartments. Each roughly 30m2 in size, these high-end units were offered fully furnished and with all bills included.
The combination of luxury amenities and turn-key convenience has made these apartments highly desirable. All units have now been leased at premium rates ranging from $725 to $765 per week.
This is a clear demonstration of the robust demand for well-appointed fully furnished rentals in prime locations. It also highlights the potential value savvy investors can achieve catering to this niche discerning demographic.
Want more information?
If you are wondering whether fully furnished is the right approach for your rental property, contact Local Agency Co. We have extensive experience leasing fully furnished rental properties and can help you determine the additional value this could provide.
CLICK HERE TO SPEAK WITH AN EXPERIENCED LOCAL PROPERTY MANAGER