– The Urban Land Institute’s annual “Emerging Trends” report ranks Jersey City, New Jersey as the best place for buying apartments in the metropolitan area.
– New York City’s Brooklyn borough is still recommended for buying apartments in the upcoming year.
– Rent growth has slowed in Sunbelt markets, leading to rising vacancy rates and decreased enthusiasm for apartment investment.
– Northeast and Midwest metros are now leading the country in rent growth, making them attractive to investors.
– New York City has a low vacancy rate of about 2.5%, despite losing population during the pandemic.
– Jersey City has strong rent growth due to renters being pushed out of New York City.
– Miami, which benefited from New York population migration, now has a vacancy rate of over 7% due to a high construction pipeline.
– Jersey City, Madison, and Columbus are among the top cities for buying apartments in 2024.
– Many Sunbelt metros have fallen out of favor for apartment investment, with Nashville being the exception.
– Charleston, San Antonio, and Charlotte have the highest hold recommendations for apartment investment in 2024.
New York City and the surrounding region have received a lot of negative attention about losing population. But the metropolitan area’s apartment business doesn’t appear to be feeling the effects.
For the second consecutive year, real estate professionals have ranked a portion of the metropolitan area as the best for buying apartments, according to the Urban Land Institute’s annual “Emerging Trends” report released Oct. 31.
Jersey City, New Jersey, just across the Hudson River from Manhattan rose to the top of apartment investment prospects next year among the nearly 2,000 real estate professionals surveyed for the nonprofit research and policy organization’s report. New York City’s Brooklyn borough held the No. 1 place in the influential report for this year and still has a buy recommendation on the list going into next year.
Both reflect attitudes among real estate investors that began shifting in 2022 with rent growth slowing in Sunbelt markets where apartment construction pipelines expanded to historic levels. Vacancy rates are rising to drive rents down as supply of new units exceeds demand among renters.
Buy recommendations, however, were muted in ULI’s report for 2024 compared to its report for 2023. Fewer landed the buy recommendation than in ULI’s 2023 report, and the level of enthusiasm for buying was lower. Higher interest rates played a major role in pummeling apartment investment sales this year have suppressed investment appetites as investors and owners see if there’s interest rate relief of some kind next year.
Still, Northeast and Midwest metros now lead the country in rent growth, persuading investors to eye them as potential places to snap up properties if they can strike a deal that works in the current environment. Apartment construction isn’t as rampant in these markets, and there’s enough demand to push rents higher and vacancy lower.
“New York City is the tightest market in the country from a vacancy standpoint, so renters are being pushed out to New Jersey, which has some of the strongest rent growth in the country at the moment,” said Sam Tenenbaum, multifamily economist for commercial real estate brokerage firm Cushman & Wakefield.
New York City vacancy is about 2.5%, according to Cushman & Wakefield data. And that is where vacancy was before the pandemic pushed the number to about 3.6%.
The Big Apple Population Decline
It would seem like a contradiction that a metro that lost about 400,000 in population between 2020 and 2022 would have such low vacancy.
New York City alone lost 468,000 in population in between April 2020 and July 2022, according to Census Bureau data. Today’s population sits at 8.33 million compared to 8.8 million in mid-2020. The metro, which includes Jersey City, sits at about 19.6 million people down from the peak of 20 million in 2020 but still above the historical trend.
Tenenbaum noted that household growth drives demand for apartments, not population. In New York City’s case, keeps rents growing because of factors such as difficulty in building new apartments combined with low apartment vacancy, nominal job growth and household growth, he said.
In September, the New York City market at year-over-year rent growth of 2.1% compared to Miami’s 1.2% growth, according to Apartments.com. Miami’s annual rent growth peaked at 17.2% at the end of the first quarter last year.
But vacancy in the Miami area, one of the benefactors of New York population migration, now has pushed past 7%, according to Cushman & Wakefield data. Vacancy is expected to go higher because of a construction pipeline of roughly 31,000 apartment units, which is still at at historically high level.
The New York City metro has more than 61,000 units being built, the highest in the country. But it’s a smaller percentage of existing apartment units than in Miami. Cushman & Wakefield shows the New York City metro with roughly 882,000 units, compared to Miami’s more than 120,000 such units. The firm tracks properties with 50 units more, which is generally considered investment grade.
Buy or Hold
In the ULI report, Jersey City landed the 2024 buy recommendation from 61% of the respondents. Brooklyn scored 70% last year but 53% for 2024.
Madison, Wisconsin, home to the University of Wisconsin, was a close second with 60%. Columbus, Ohio, where construction is underway on two Intel chip plants and fueling job growth, was third at 59%.
Many Sunbelts metros fell out of favor this year. Florida cities Jacksonville, Tampa and Miami dropped out of the Top 20 list, leaving West Palm Beach as the only entrant from the Sunshine state. Raleigh/Durham, North Carolina, Knoxville, Tennessee, and Oklahoma City, Oklahoma, were the only Sunbelt metros with at least 50% for buying.
Only 42% of respondents gave Nashville, Tennessee, which the report ranked No. 1 for overall real estate prospects next year and one of the country’s hottest apartment markets, gave a buy recommendation.
The bottom six in 2024 have hold recommendations above 50%. Charleston, South Carolina, San Antonio, Texas and Charlotte, North Carolina, tied with highest hold recommendation of 55%. San Antonio wasn’t on the list for 2023.
But 67% of the real estate pros surveyed last year had Charlotte as a buy this year but swung to a 40% buy in 2024. Charleston scored a 65% recommendation for this year. It, too, swung to 40% next year.
Carl Whitaker, director of research and analysis with multifamily software firm RealPage, said he was surprised to see Charleston so low. “Crazy amounts of development there but performance has been good – if not great – by national standards,” Whitaker said.
Property Chomp’s Take:
Hey there! Let’s talk about the exciting apartment market in the New York City metropolitan area, specifically Jersey City, New Jersey. Despite the negative attention surrounding population loss in the region, the apartment business seems to be thriving.
According to the Urban Land Institute’s annual “Emerging Trends” report, real estate professionals have ranked a portion of the metropolitan area as the best for buying apartments for the second year in a row. Jersey City, located just across the Hudson River from Manhattan, has risen to the top of apartment investment prospects for next year.
Interestingly, New York City’s Brooklyn borough held the No. 1 spot in this influential report for this year and still maintains a buy recommendation for next year. This reflects a shift in attitudes among real estate investors that began in 2022. Rent growth has slowed in Sunbelt markets, where there has been a significant increase in apartment construction. This has led to rising vacancy rates and a decrease in demand among renters.
However, the ULI report for 2024 shows a muted response in terms of buy recommendations compared to the previous year. Fewer properties received the buy recommendation, and the level of enthusiasm for buying was lower. The main factor behind this decline is the higher interest rates, which have affected apartment investment sales this year and suppressed investment appetites. Investors and property owners are waiting to see if there will be any interest rate relief in the coming year.
Nevertheless, Northeast and Midwest metros are leading the country in rent growth, making them attractive to investors. These markets do not have as much rampant apartment construction, and there is enough demand to push rents higher and vacancy rates lower.
One of the main reasons for the high demand for apartments in Jersey City is the tight vacancy market in New York City. Renters are being pushed out to neighboring areas like New Jersey, which is experiencing some of the strongest rent growth in the country. According to Cushman & Wakefield data, New York City’s vacancy rate is currently around 2.5%, which is similar to the pre-pandemic levels of about 3.6%.
It may seem contradictory that a metro that has experienced a population decline would have such low vacancy rates. New York City alone lost around 468,000 in population between April 2020 and July 2022. However, it’s important to note that household growth, rather than population, drives demand for apartments. Factors such as limited construction opportunities, low apartment vacancy, nominal job growth, and household growth contribute to the sustained rent growth in New York City.
Comparing New York City to Miami, another city that has seen an influx of New York population migration, we can see the difference in vacancy rates. Miami’s vacancy rate has surpassed 7% due to a construction pipeline of approximately 31,000 apartment units. In contrast, the New York City metro has over 61,000 units being built, but this is a smaller percentage compared to the existing apartment units.
In the ULI report, Jersey City received a buy recommendation from 61% of the respondents for 2024, while Brooklyn scored 53%. Madison, Wisconsin, and Columbus, Ohio, were also highly ranked. Many Sunbelt metros fell out of favor this year, with only a few like Raleigh/Durham, North Carolina, Knoxville, Tennessee, and Oklahoma City, Oklahoma, receiving buy recommendations.
The bottom six on the list for 2024 have hold recommendations above 50%. Charleston, South Carolina, San Antonio, Texas, and Charlotte, North Carolina, are tied with the highest hold recommendation of 55%. It’s worth noting that Charlotte, which was highly recommended in previous years, saw a decrease in buy recommendations for 2024.
Overall, the apartment market in the New York City metropolitan area, particularly in Jersey City, offers promising investment prospects. Despite the population decline, factors such as limited construction opportunities, low vacancy rates, and sustained rent growth make it an attractive market for real estate investors. So, if you’re considering investing in apartments, keep an eye on Jersey City and Brooklyn in the coming year!