RP Data said rents in capital cities rose 4.2 per cent in the year to December, above the 2.7 per cent official inflation rate over the same period.
"We expect rents to increase by around 7 per cent during 2011," RP Data analyst Cameron Kusher said, adding rents would rise most for housing markets on metropolitan outskirts and some inner city units.
"For the coming year we expect rental markets to tighten further and rental growth during 2011 will likely eclipse that of 2010," Mr. Kusher said.
The rise in rent comes amid an expected rise in inflation and worsening affordability with US group Demographia listing Australia's capital cities as some of the least affordable in the English-speaking world.
That affordability crisis will leave many renters in capital cities - where the bulk of Australians live - with little choice but to pay more for a home forcing many to remain in the rental market longer.
Australian Bureau of Statistics data released in January, showed housing costs rose 0.6 per cent in the December quarter, taking the annual rise to 5 per cent.