Property Knowledge Centre → How Is Market Rent Determined?
How Is Market Rent Determined?
How is market rent determined? Market rent is determined by current comparable rentals, competing properties, presentation and renter demand, not simply by applying a fixed percentage increase to the existing rent.
Market rent is essentially the amount a property could reasonably be expected to achieve in the current rental market. It should be supported by evidence rather than determined simply by what the property rented for previously or by adding an arbitrary percentage each year.
Current comparable rental evidence is one of the most important starting points. The property manager should consider properties with similar accommodation, location, condition, size and features that have recently been leased, together with comparable properties currently available to renters.
No two properties are exactly the same. Even within the same suburb, differences in street position, floorplan, renovation, natural light, parking, outdoor space, heating and cooling, presentation and overall condition can materially affect what renters are prepared to pay.
Current competition also matters. Renters do not assess a property in isolation. They compare it with the other properties available to them at the same time. If several similar properties are available, that competition can influence both price and how quickly the property leases.
The opposite can also occur. Where there is limited supply and strong demand for a particular type of property, renters may be prepared to pay more than historical evidence initially suggests. This is why current market knowledge is important when assessing rent.
Market rent should not simply be calculated by applying a standard annual percentage increase. Rental markets do not necessarily move at a uniform rate. Different property types and locations can perform differently, even during the same period.
For an existing tenancy, the current rent may therefore be above, below or close to the prevailing market depending on when it was last reviewed and what has happened in the market since then. The appropriate comparison is with relevant current rental evidence.
There is also a commercial balance to consider. Setting an asking rent substantially above where renters perceive value can reduce enquiry and increase vacancy. The additional rent being sought can quickly be offset if the property remains vacant for an extended period.
Equally, an owner should not automatically accept a lower rent simply to secure a renter quickly. The objective is to understand the evidence, position the property appropriately and create enough genuine interest to achieve a strong market result.
This is where local knowledge and continuity become valuable. A property manager who remains connected to leasing activity can see what renters are inspecting, which properties are receiving applications, where resistance to price is occurring and what is actually leasing rather than relying solely on historical data.
In a highly segmented property management model, the person advising the owner on rent may not necessarily be the person meeting prospective renters or conducting the leasing. Maintaining communication between those functions is important because direct renter feedback provides valuable information about where the market is sitting.
At Clements International, our boutique property management approach places an emphasis on continuity over excessive scale. Keeping the appraisal, leasing activity and ongoing management connected helps ensure rental advice is informed by what is actually happening in the market.
Market rent is ultimately determined by evidence and current renter behaviour: what comparable properties are achieving, what else renters can choose from and what they are prepared to pay for your particular property.
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Market rent should be assessed using current comparable rental evidence, competing properties, presentation, condition, accommodation and renter demand. It should not simply be based on the existing rent or a standard percentage increase. An in-person assessment also allows the individual characteristics of the property to be considered rather than relying on broad suburb data alone. For an assessment of your property’s current rental position, request a professional rental appraisal with Clements International.
For an assessment of your property’s current rental position, request a professional rental appraisal, or learn more about Clements International’s property management services.