Apartment demand in north New Jersey continues to surge

Real Estate Weekly, April 18, 2001

Marcus & Millichap released its Apartment Research Report for the Northern New Jersey market, which indicates that apartments are attractive investment options this year.

Some of the most significant aspects of the re-port include that job growth dipped slightly in 2000, a trend expected to continue through the first half of this year as the national economy slows.

Although the national economy has slowed considerably during the last several months, New Jersey continues to experience steady job gains. Total non-agricultural employment reached a record level last year, approaching 4 million. Large increases in housing costs are threatening to cut into disposable, in come, however, as prices in many areas throughout the Newark and Bergen- Passaic markets are rising four to five times as much as the median household income.

Proximity to rail stations in central New Jersey is becoming increasingly important for both new and rehabbed apartment properties, as developers look to capitalize on the large commuter population. Apartment construction slowed some what in 2000, with roughly 2,700 units permitted. Although demand remained high across the region, concerns about the economy and more stringent underwriting requirements played a large role in the declining activity.

Bergen County was by far the most active last year, with more than 1,500 multi-family units started. Development near riverfront locations was popular in 2000, with permits issued for more than 600 units in Hudson county, a trend that is expected to continue this year. New properties are often built in desirable areas such as near commuter stations in central New Jersey, to take advantage of renters' and owners' willingness to pay a premium for top locations. Vacancy rates are forecast to remain stable this year as absorption keeps pace with new product becoming available.

Vacancy rates in New Jersey declined to the lowest levels in several years in 2000, as demand for units in prime locations near business centers outpaced construction levels. The forecast for 2001 is for stabilizing vacancy across the region. The falling interest rates of the past few months may reduce the number of renters in the market, as home ownership becomes a more attractive option than it has been in recent years. However, with the slowing of the overall economy and continued volatility on Wall Street and in the tech sector, New York residents may increasingly look to New Jersey to live with its much lower rents and nearness to amenities and attractions.

Bergen and Hudson counties will continue to be the tightest markets in the region, with attractive locations near work, public transportation, restaurants, and nightlife. Vacancy in these markets ranges from 2 to 3%, but is below 1% in certain desirable areas.

Class "A" rents in Hudson and Bergen counties will continue to show healthy growth, particularly along the waterfront, where young professionals are attracted to prime locations offering short commutes.

A slower pace of construction and low vacancy levels are anticipated to pave the way for further rent increases in 2001. New class "A" product that has become available during the past 12 months will show the highest rent growth across the region, particularly along the Hudson River, where development has been brisk. Rent controlled units throughout New Jersey will continue to have increases, but owners in softer markets may forgo rent hikes to the full allowable amount in order to increase occupancy. Cities in northern Bergen county will continue to have strong rent growth, with the average asking rent coming in at more than $1,000 per month. This is the highest average for any county in the region, with high-side rents surpassing the $3,000 mark. New developments in choice locations are asking. for and getting premium rents, a factor that will allow older properties in the area to continue to in crease rents while still being able to compete with the new product. Retail and office property is also being built in these areas, which will help to attract renters.