The return investors can expect on properties across Australia’s major cities is rising, with rising rentals creating improvements in some cities and falling prices helping in others, including Sydney and Melbourne.

Rental yields increased in all capital cities bar Brisbane over the past three months, data from the latest Domain Rental Report shows.

With yields still lowest in Sydney and Melbourne and sale prices falling, remaining investors were increasingly looking to spend up elsewhere, says Rich Harvey, chief executive of propertybuyer.com.au.

“You would only ever consider going to that low a yield if you knew there was going to be a strong capital gain,” Mr Harvey said. “We’re seeing a lot of investors [now] interested in regional areas or Brisbane and placing a lot of our investors in the Newcastle market.”

Although yields were an important factor, Mr Harvey warned investors should focus on the three things that drive property prices – potential population growth, infrastructure projects and employment opportunities.

Apartments in Canberra, with a gross rental yield of 6.14%, offered the best return over the March Quarter, followed by Darwin with 6.07% and Adelaide at 5.32%.

Hobart offered the best yield for houses at 5.13%, helped by having the lowest vacancy rate in capital city Australia.

“For investors, Hobart is a double win – it not only has the highest yield, but it’s seen significant capital growth,” says Domain senior research analyst Nicola Powell.

Powell says demand from tenants means rents are rising at a faster rate than house prices, making renting in Hobart more expensive than ln Melbourne.

Meanwhile the development boom in Canberra in recent years pushed unit prices down, Dr Powell says, but much of the stock had been aimed at owner-occupiers, resulting in a lack of available rentals which had in turn pushed rents up.

Over the year to March, Melbourne had the biggest improvement in house yields jumping 7.5% to reach a median yield of 3.3%, fuelled by increases in the inner city and inner south where yields improved 15%.

It was followed by Perth and Sydney, where yields increased 6% and 5.3%. Perth also recorded the largest increase in unit yields, improving 8.5%.

“When you look at the markets that have seen the most significant improvements … it’s the cities that have seen the strongest price declines,” Powell says.