While the vacancy rate for central Sydney remained at an average of 1.4 per cent, the change in suburbs around The Hills, Penrith and Liverpool showed more people were exchanging rentals to buy homes.
NSW Real Estate Institute president Steve Martin says the figures released today show more and more rental properties are available now as investors and first home buyers come back to the market.
"At last it seems we are seeing some return to the market by investors, at least in the key population belt of Sydney," Mr Martin said.
"Importantly, many tenants are taking advantage of increased first-home buyer grants and achieving the Australian dream of home ownership, which is freeing up rental stock."
Compare this to the numbers during the market's lowest points - May 2008 - when just 0.8 per cent of properties were vacant and the increase is clear.
The other change in January was in the middle suburbs, which fell 0.2 per cent to a vacancy rate of 1.3 per cent, keeping the overall Sydney average stable at 1.4 per cent.
BIS Shrapnel's residential property analyst Jason Anderson believes the rental shortage is far from over, saying their will be shortages for up to another five years, but he does agree that the conditions are good for homebuyers and this is encouraging more people out of rented accommodation into their own home.
Mr Anderson also believes rising unemployment and further deterioration in the Australian economy could have an adverse impact on property markets and home prices.