With 4,900 new rental units coming on line this year in Northern New Jersey, inquiring minds are asking whether demand here is keeping pace with supply. The short answer is “yes.” New multifamily inventory continues to lease up, especially along the Hudson River Gold Coast, with performance meeting and exceeding developer expectations market-wide.
Rental rates for Class A apartment product in Northern New Jersey have increased 3 percent year over year, registering at $2,369 at the midway point of 2017, according to Reis. Vacancy had been trending down since mid-2016, with a slight tick up in the second quarter of 2017, currently resting at 5.2 percent due to the delivery of 1,600 units in the last three months. Compare this to a $1,336 average rent and 4.4 percent vacancy rate nationwide, and New Jersey’s sustained appeal to investors and developers is unquestionable.
However, multifamily investment sales to date in 2017 have been fairly measured — with fewer opportunities coming onto the market. For sales in excess of $10 million through August 2017, the volume has totaled $1.07 billion with the number of units sold totaling 4,708 (down 12 percent and 43 percent respectively compared to the same time in 2016) across 21 transactions. Our region has had brisk sales volume for the past few years and as a result we have seen a lot of inventory trade hands; thus putting us in a situation where many of the recent cycle’s buyers are not yet ready to sell again. Coming out of the fourth quarter of 2016, owners have taken time to observe interest rate trends and watch capital’s reaction to the results of the presidential election, contributing to the lull in sales activity.
Despite the measured pace of sale of existing communities, significant land sales continue to close. Of note, Lincoln Equities purchased a redevelopment site (zoned for 370 units) in northern Jersey City.
Additionally, at mid-year the multifamily market again appears to be finding its footing as summer closings are providing transparency into where assets are pricing, and we are seeing this translating into increased inquiries for our opinion on property values. These requests for opinions of value tend to be a precursor for owners opting to sell and, as such, provide a barometer for increased sales volume through the balance of the year.
Investors and developers remain at the ready for new opportunities, and they are working through their portfolios, upgrading existing holdings and going vertical on land sites. Major nationals remain among the most active players in our region, with AvalonBay Communities and Mill Creek Residential among them. Developers in our local community — led by BNE Real Estate Group, Russo Development, Advance Realty and Bijou Properties — are also growing their presence. New arrivals to our region include NRP Group, Albanese and Lecesse.
These organizations continue to vie for opportunities in New Jersey, which has become a “market of markets” where there is intense pressure to own in the towns with the best fundamentals and connection to Manhattan. On the ever-expanding Gold Coast, all eyes are turning to Bayonne as the next town to accommodate new urban-style development. Bayonne is positioned to offer the same quality of life and Manhattan connect-ability as its increasingly land-constrained, high-barrier-to-entry neighboring towns to the north.
In the suburbs, developers are pursuing transit-oriented sites and those that offer large-scale, mixed-use redevelopment potential. The evolving definition of “transit-oriented” is worth noting. It seemed coming into this market cycle that any apartment building near a train station fit the definition; today rider time and number of connections to Manhattan, as well as walkable proximity to critical mass of retail, entertainment and restaurants are must-haves.
What’s next? After several years of sitting on the sidelines, for-sale condo and townhome developers have returned to Gold Coast and suburbs, respectively. They are bidding on land in a big way and are proving to be more competitive on pricing. On the Gold Coast — for the right site — condo players are paying up to two times what rental developers are putting forth. And with good reason. They are setting new high-water marks in terms of pricing in that market, achieving north of $1,200 per square foot.
The bottom line for New Jersey multifamily through the rest of this year and into 2018 is strong. Lenders and investors are becoming increasingly comfortable as they recognize that fundamentals will remain stable. New construction is being absorbed at a better-than-anticipated pace. Cap rates have trended sideways for the most part, ranging from mid-4 percent to mid-5 percent for the best located Class A and Class B product. Interest rates have declined year to date. All of this is setting the stage for stepped-up activity moving forward.
— By Brian Whitmer, executive director, metropolitan area capital markets group, Cushman & Wakefield. This article first appeared in the October 2017 issue of Northeast Real Estate Business magazine.