The California-based brokerage ranked North Jersey eighth among 44 major U.S. markets in its index, which is based on factors like projected employment growth and demand. The seven-county region placed ahead of cities like Boston, last year's fourth-ranked market, and Los Angeles.
The report echoed a common theme among local experts — that vacancy will continue to fall and rents will continue to rise in New Jersey, especially with "comparatively light inventory growth" expected in 2013. Rent growth also will be fueled at the lowest levels by investors who buy and renovate older properties in secondary markets.
"In a lot of these older garden communities, there is an upside in rents, because a lot of them really haven't been updated — in some cases, in decades," said Thomas McConnell, a multifamily broker in Marcus & Millichap's Elmwood Park office. "You have another group of owners that are coming in, dusting them off and cleaning them up, and they're taking advantage of the lack of home ownership."
He cited a recent deal he brokered for a 126-unit property in Rochelle Park, in which the buyer did "minor improvements" and was able to raise rents from $800 to more than $1,000.
Brian Whitmer, a broker with Cushman & Wakefield, said "that's been the biggest growth, in terms of new investment dollars," referring to buyers who renovate older properties in strong markets. The approach will still "attract that tenant who either can't afford or doesn't want to stretch to get to the (class) A product."
"As the rents get higher and higher in the A product, you're going to have a subset of renters that at some point in time tap out and just can't afford it," so they will settle for fewer amenities, Whitmer said. "And they're going to migrate to those properties."