Multifamily investment and development still strong in NJ.

All indicators remain encouraging in the New Jersey multifamily sector at mid-year 2007, with robust rent increases, strong capital flows and healthy regional job growth. In a continuing trend, the market is benefiting significantly from the strong economic environment in neighboring Manhattan.

The Northern and Central New Jersey apartment inventory consists of more than 1,700 properties comprising over 375,000 units. The highest concentrations of multifamily properties are located within the densely populated northeastern counties of Bergen, Hudson and Essex. These counties either support an area employment center or serve as bedroom communities for Manhattan commuters.

New Jersey's overall rental property occupancy rates remain favorably high, currently at 96 percent on average, with recent sales indicating properties trading at 99 percent occupancy.

The state's average rent of $1,200 per month for a one-bedroom unit consistently ranks it among the top 10 most expensive places to lease nationally. Undersupply of inventory and difficult barriers to entry throughout New Jersey have set rents to grow by more than 3 percent for Class B product and by more than 10 percent for Class A units during 2007.

Many market participants are reporting the ability to raise rents in the high single digits with no adverse effect on occupancy. Concessions have disappeared for Class A properties, for which the average rent is nearing $1,800 per month in Northern New Jersey and $1,300 in Central New Jersey.

Within this context, multifamily investment and development remains strong in the Garden State, as interest rates rise and single-family home buying continues to slow.

During the first half of 2007, 24 properties traded for a total of $375 million, at an average price per square foot of $140,000. Cap rates have stabilized and continue to range between 4.5 and 5.5 percent depending on the age and the class of the property.

One trend worth noting is the increase in institutional investment during the past year. While private investors and developers still accounted for the majority (53 percent) of apartment sales, since 2004 institutions have become more active in the New Jersey apartment sector.

In general, institutional investors are aggressively seeking to acquire properties over $100 million, and small-scale private in-state and out-of-state investors are lining up to acquire properties under $25 million. The $25 million to $100 million market remains heated as equity funds, advisors and New York Metro real estate families continue to try and deploy capital.

Also worth noting are shrinking holding periods in the New Jersey apartment sector. Some 61 percent of properties sold in 2006 had been held for less than six years; 25 percent of the deals were held for less than two years.

This can be attributed to changes in both buyer composition and investment strategies, as new buyer groups such as private equity funds and REITs target much shorter holding periods than traditional private investors that hold on to their investments for no less than 10 years. Additionally, value-add investment strategies, which have become more popular with entrepreneurial and institutional investors, have encouraged shorter investment life cycles.

During the past year, Hudson, Bergen and Ocean counties have been the most active in terms of new multifamily development.

Today, substantial activity is being spurred elsewhere by commercial development along major transportation corridors, including the Garden State Parkway down to Atlantic City and Route 78, which connects New York City to Pennsylvania.

Currently, 11 rental projects are under construction and set to be completed during 2007. The majority of these new developments are either 50 percent occupied or sold out as condos. Looking ahead, significant proposed rental projects include 77 Hudson Street (481 units) and Metropolis Towers (420 units) in Jersey City, Harrison Waterfront Redevelopment Apartments in Harrison (400 units), the second phase of Pier Village in Long Branch (223 units), and the Crossings at Old Bridge (250 units), among others.

Statewide, more than 7,000 units are under construction, and more than 9,100 units are in the pipeline to be built in the next three to four years. Significant future projects in the Garden State include Centuria's mixed-use development in Fort Lee (840 units), Liberty Harbor Phase I in Jersey City (400 units), 111 First Street and Warren in Jersey City (702 units), 77 Hudson Street in Jersey City (420 units) and Trump Plaza I & II in Jersey City (800 units).

As vacancy rates continue to decline and rental rates continue to increase in neighboring Manhattan, New Jersey will continue to experience solid rent growth and a steady increase in demand, especially along the Hudson River "Gold Coast" in Jersey City, Hoboken and Edgewater.

According to the Department of Labor, New Jersey will benefit from a strengthening national economy through the remainder of 2007. The state's unemployment rate is 4.3 percent, still below the national rate of 4.5 percent.

Additionally, the state set a record of just over 4 million new jobs as of year-end 2006. These factors will spur progress in the multifamily market throughout the balance of the state.

In short, we fully expect the positive trends we have seen through the first half of the year to continue through the next six months and into 2008.

BY JOSE CRUZ, SENIOR DIRECTOR CUSHMAN & WAKEFIELD'S METRO AREA CAPITAL MARKETS