State of the Market | Hudson County, New Jersey

Trends, Challenges, and Opportunities | 2022-2024

The multifamily real estate market has navigated a dynamic and challenging environment over the past three years. From interest rate fluctuations to shifting market demands, here’s an in-depth look at how the sector has evolved in Hudson County, New Jersey from 2022 to 2024, and what lies ahead for investors.

2022: A Strong Start with Increasing Rates

• 5-Year UST Rates: January: 1.20% | June: 3.30%
• Buildings Sold: 61
• Total Units Traded: 1,511
• Total Volume: $427,578,900
• Average Cap Rate: 5%

In 2022, the multifamily real estate market remained robust despite a rising interest rate environment. The 5-year U.S. Treasury yield (UST) increased from 1.20% in January to 3.30% by mid-year.  This rapid rise in rates  did not deter investors. In fact, the market saw the highest sales volume over the three-year period. A total of 61 multifamily buildings were sold, translating to over 1,500 units and nearly $428 million in transaction volume. The average capitalization (cap) rate stood at a stable 5%, indicating a robust investor appetite even as borrowing costs increased.

2023: Market Adjustment Amid Continued Rate Increases

• 5-Year UST Rates: January: 3.85% | June: 4.00%
• Buildings Sold: 45
• Total Units Traded: 674
• Total Volume: $185,460,095
• Average Cap Rate: 5.5%

The trend of higher interest rates continued in 2023, with the 5-year UST climbing from 3.85% in January to 4.00% by June. This increase coincided with a drop in sales, with only 45 buildings changing hands—a 26% decrease from 2022. The total number of units traded fell significantly to 674, and transaction volume dropped to $185.5 million, less than half of the previous year’s figure. The cap rate increased to 5.5%, mirroring the cautious investor sentiment amidst a higher cost of capital.

2024: Continued Softening, But Renewed Optimism on the Horizon

• 5-Year UST Rates: January: 3.84% | June: 4.40%
• Buildings Sold: 34
• Total Units Traded: 473
• Total Volume: $114,566,500
• Average Cap Rate: 6.15%

Entering 2024, the multifamily market experienced further softening as the 5-year UST continued to rise, beginning at 3.84% in January and rising to 4.40% by June. This continued to put pressure on transaction activity with only  34 buildings  sold during this period—a substantial 44% decrease from 2022. The total units traded dropped to 473, and the total transaction volume further declined to $114.6 million. The cap rate climbed to 6.15%, reflecting the market’s adjustment to the higher interest rate environment.

Northern New Jersey Trends in the Market

The Hottest Rental Market in the Northeast

During this period, Northern New Jersey emerged as a top performer in the rental market. With an impressive 14 prospective renters for every vacant apartment unit due to limited market inventory, demand remains exceptionally high. The state has seen a notable 70.5% lease renewal rate, surpassing the national average of 60.2%. The influx of New Yorkers seeking housing in New Jersey underscores the state’s appeal. Jersey City stands out with some of the highest rents among the nation’s largest cities. The median rent on the Jersey City Waterfront surged to $3,940 with a moderate annual growth rate of 3.6% following a period of rapid increases.

New Jersey’s Development Boom

New Jersey’s housing development has seen unprecedented growth. Last year, the state issued more housing permits than New York for the first time in decades. Favorable factors such as lower construction costs, tax incentives, and pro-growth policies have fueled this boom. The expiration of NYC tax breaks and the appeal of Payment In Lieu of Taxes (PILOT) programs, which replace property taxes with more predictable payments, have further bolstered development activity in New Jersey.

Northern New Jersey in particular has experienced a significant influx of luxury apartments, which now make up a large portion of new developments. Despite the overall multifamily vacancy rate of 4.6%, the luxury segment faces a higher vacancy rate of nearly 9%. This shift towards high-end units has intensified competition in regions like Essex and Union counties, which have the lowest median household incomes in the area. These counties will see their inventory of upscale units more than double compared to pre-2020 levels, creating a competitive environment for high-earning renters.

Looking Forward: Signs of Renewed Activity in Hudson County

While the past three years have been marked by declining sales and volumes, there is a growing sense of optimism as the market moves forward with impressive demand fundamentals. Real estate professionals have identified parts of the metropolitan area as top investment prospects for 2024, driven by strong rent growth and emerging opportunities. With discussions of potential rate cuts on the horizon, there appears to be a ripple effect throughout the market. Sellers and investors alike are showing signs of renewed interest, positioning themselves to take advantage of more favorable conditions. This reinvigorated activity suggests that the multifamily market could see a resurgence in the coming months, as participants anticipate a more accommodating interest rate environment.