Despite a lag in employment growth and a sluggish economic recovery, New Jersey's apartment market is drawing increased demand from investors and developers, especially in the northern part of the state, according to a quarterly report from Marcus & Millichap, a real estate investment services firm with an office in Elmwood Park.
"What's pushing the trend for apartments is the change in homeownership. A lot of folks back in the day thought owning a home was the American Dream and a great investment, but the home market is completely sideways, and it's not looked at as investment anymore," said Thomas McConnell, a senior associate at Marcus & Millichap's Elmwood Park office. "People would rather pay rent and have the flexibility of moving, and landlords have taken advantage of that by pushing their rents up."
The report forecasts that asking rents in the state will hit "all-time highs" in 2012, jumping 3.5 percent to $1,366 a month — compared to 2.3 percent growth in 2011.
Connell said the northern New Jersey apartment market will take in the lion's share of growth, since the report projects 2,415 market-rate apartment units will be added to the state this year, with more than 1,150 of those units coming to North Jersey.
"It's a night and day comparison between even Monmouth County and Mahwah. Demand for investment is completely lopsided," McConnell said. "We were just selling an 96-unit asset in Ocean Township and a 75-unit in Mahwah — both built by the same company in 1995, and both put on the market at the same time — but it really came down to the location for the investors. They're pushing investment towards North Jersey, because that's where the labor market is the strongest."
According to McConnell's partner, Kevin McCrann, while part of the growth in apartment developments can be attributed to projects that were put on hold in the last few years and now working themselves through the construction backlog, several are new, and he's noticed an increased hype from private investors for the development of high-end apartment complexes "in and around Jersey City."
"Manhattan has the strongest apartment market in the country, but people are looking to move westward to get more for their money by living in New Jersey," McCrann said, noting that high-end rentals in Jersey City are almost 30 percent cheaper than comparable units in Manhattan. "I think we'll see even more class A-level communities being built around mass transit ... even in places further west, like in East Rutherford and Mahwah."
McCrann said growth in the South Jersey apartment market — which is only projected to add 317 units by the end of 2012 — will be driven by improvements in Philadelphia's real estate market and 5,500 jobs being added in Atlantic City from the Revel hotel and casino, since hospitality workers usually lease apartments.
The report said sales activity in South Jersey surged 45 percent in the last year, and it predicts that local private investors with easy access to debt will purchase and upgrade nonperforming class A properties in South Jersey to increase rents over the next several years.