Northern New Jersey Area Fourth Quarter 2013 Apartment Market Report

New Supply Absorbed as Rents Rise in New Jersey

Apartment demand created by the surge of new jobs generated in Northern New Jersey and in Manhattan is giving local operators more leverage when negotiating leases. This is particularly true as the cost of living in Manhattan rises, forcing tenants to migrate across the Hudson River in search of affordable housing. Now that occupancy in the region is above 96 percent, operators are raising rental rates more aggressively in townships without rent control laws. This is pushing apartment demand further inland and into areas without direct proximity to major transportation corridors. Builders have responded relatively quickly to favorable conditions, activating previously approved multifamily permits. Completions of market-rate apartments have pushed ahead over last year’s deliveries, with most of the units concentrated in Jersey City and Hoboken. As this new space enters the market, strong demand will generate a normal turnover rate, keeping replacement expenses low.

Through the first three quarters of 2013, the number of apartment listings was insufficient to meet buyer demand in Northern New Jersey, a trend that is anticipated to continue through year end. Anticipation of the Fed’s actions resulting in rising interest rates, combined with the competitive buyer market, motivated some investors to list their properties while they retained the most control over the final sale price. Value-add properties in highly desired neighborhoods are trading at cap rates in the mid-4 percent area, though after renovations, the real cap is evaluated to be in the mid-6 percent range. First-year yields in the 8 percent range are sought after in more stable communities in northern Newark. However, high-yield assets are limited and most properties in the $1 million to $10 million range are trading between a mid-4 to mid-5 percent cap rate. Investors searching for a leg up are revaluating previously bank-owned assets or properties disposed by individuals unable to meet previous loan obligations.

2013 Annual Apartment Forecast

• Employment: Job growth will continue to expand in the fourth quarter as 30,000 positions are created in 2013, a 1.6 percent annual increase. In 2012, payrolls reached 29,700 positions.
• Construction: Approximately 2,194 units are scheduled to be completed in 2013. Last year, 1,240 units were brought online. In both years, the majority of the units have been delivered in Hudson County.
• Vacancy: By year end, new supply of apartments and single-family options will tick up vacancy 40 basis points to 3.4 percent. In 2012, vacancy dipped 20 basis points to 3.0 percent as new deliveries were limited.
• Rents: Strong demand for rentals across the region will push overall effective rents up 3.9 percent to $1,820 per month in 2013. In the previous 12 months, rents dropped 7.3 percent.

 

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