East Rutherford, N.J.—An unprecedented number of new multifamily units now or soon to be underway in northern New Jersey has market observers keenly focused on the development pipeline, according to the Metropolitan Area Capital Markets Group of Cushman & Wakefield, Inc. in East Rutherford, N.J.
Some 17,000 units are under construction or likely to break ground in the next three years. More than 8,000 of the units, or almost half the total, will be situated in Hudson and Bergen Counties, along the Hudson River Gold Coast. Moreover, two-thirds of that activity is to be found in Jersey City.
Why is development activity so robust in this particular submarket? The answer in a word is jobs. “The epicenter for jobs in the region is definitely Manhattan,” Brian Whitmer, senior director of the Metropolitan Area Capital Markets Group, tells MHN. “As Manhattan rental rates rise, it pushes people to the next best option, which is the Gold Coast.”
There may be a short-lived impact on Class A rent growth in New Jersey as the new inventory now or soon to be under development is absorbed, Whitmer notes. “However, we do not anticipate any backtracking,” he reports.
“The demand is there, and in the long term, this is a finite market. There are only so many properties that can be built on the waterfront or within a convenient walk to mass transit.”
He notes that the Gold Coast’s nearness to Manhattan, coupled with PATH, N.J. Transit and ferry access to New York City, render it the most appealing option.
Accounting for the enormity of northern New Jersey development is a rare coming together of catalysts. “It’s really a confluence of a few factors,” Whitmer says. “They are apartment leasing fundamentals, equity capital looking to come into this asset class, and construction financing.”
The fundamentals began improving in 2010, and since then vacancy rates have dropped to a current rate of 3.9 percent, the same level as before the recession. Whitmer notes that as a result, rental rates have ballooned to their highest points in history, according to REIS. Northern New Jersey’s 2.4 percent rent growth in 2011 placed it first among 15 Northeast metros, and fourth in the United States.
“Simply put, New Jersey is a good place in terms of fundamentals,” he says
Meanwhile, debt and equity capital, as well as construction financing, returned to multifamily. Fannie Mae and Freddie Mac are lending on existing assets at all-time low rates in the 3 percent range, and local and regional banks have stepped up their competition with the agencies, Whitmer reports.
He adds the first tier of those whose employment takes them to Manhattan will always want to be within a 10- to 20-minute commute. As available development opportunities in those areas are depleted, “development will move just off the water, and there will be building around transportation centers, Whitmer says.
“And then as those are filled, we will have some redevelopment and reuse, and higher densities in those areas.”