By Joshua Burd
More than 8,000 apartments will be delivered this year through new construction in northern New Jersey, the highest total of any year so far in the current real estate cycle.
That’s according to a new market report from Marcus & Millichap. The real estate investment brokerage has found that 8,250 units are slated to be completed in the region in 2016, with nearly three-quarters of those deliveries slated to come in the second half of the year.
That total marks a 25 percent jump from last year’s sum of 6,600, the report said.
Construction activity is greatest in Bergen, Essex and Hudson counties, where 14,500 apartments are underway amid continued demand in areas with easy access to Manhattan, the firm found. That activity is especially concentrated in Jersey City, where large-scale developments such as the 763-unit URL Harborside and the 538-unit first phase of Journal Squared are slated to open.
Researchers with Marcus & Millichap pointed to job growth in the state — especially from Manhattan firms that are moving west across the Hudson River — as a key fundamental. The regional economy added 19,600 jobs in the first half of 2016, pushing unemployment down to 4.7 percent.
“As employment opportunities expand, the amount of households in recent years has grown, fueling residential development and resulting in the largest addition to the multifamily sector so far this cycle,” the report’s authors wrote. “The development includes Class A mid- and high-rises that transform many neighborhoods as new restaurants and retailers open nearby.
“These neighborhoods are drawing more residents who remain employed in New York and want to save on housing yet maintain a desired quality of life.”
The third-quarter multifamily research report, prepared by Marcus & Millichap’s Michael Murphy, also said the prospect of so many deliveries late in the year will cause a short-term hike in apartment vacancy in North Jersey. That’s expected to slow the pace of rental growth, with researchers forecasting a 0.3 percent uptick in vacancy to 5.3 percent.
The firm added that sales are “at an all-time high as owners capture current values and buyers are ready to deploy capital across the Gold Coast.” First-year yields over the year are in the high 5 to mid-6 percent range, the report found, but high competition is causing deal activity to spread beyond the waterfront.
For instance, deal flow has doubled in Morris and Passaic counties, Marcus & Millichap said.
“In these areas more out-of-state buyers flocked to well-performing Class B assets on the upper end of the pricing spectrum,” researchers wrote. “Deal flow also doubled in Essex County where many buyers sought out value-add opportunities in areas prime for redevelopment and at pricing below the marketwide average.”
Other findings from the report include:
- The average price per unit in Hudson County has almost doubled in the last five years. That has pushed down cap rates an average of 80 basis points to the low-6 percent area, with well-located assets trading sub-5 percent.
- The financial services sector added 4,300 jobs to northern New Jersey in the last four quarters and there is more job growth on the horizon, due in part to relocations from out of state. They include companies such as EY and Zurich American Insurance Co., which have agreed to bring hundreds of jobs to Hoboken and Jersey City, respectively, with the help of state incentives.
- Northern New Jersey added 2,300 new apartments in the first half of the year. More than half are located in Jersey City and Hoboken, while Essex County added 582 doors through the completion of eight complexes.
- The largest projects completed in the first half of the year were the Modera Lofts, with 366 units, and the 311-unit M2 at Marbella, both in Jersey City.
- The average effective rent has grown for the sixth consecutive year, climbing 3.7 percent in June from one year earlier to $1,705 per month.
- Effective rent went up 2.3 percent in the yearlong period to $2,344 per month in Hudson County, the highest monthly rent in the region. Bergen County recorded rent of $1,651 per month, a rise of 3.8 percent in this time.