The Urby apartment tower sits along the Hudson River on the Exchange Place skyline … [+]
New York City and its surrounding region have received a lot of negative attention due to population loss. But the metro area’s apartment sector doesn’t seem to be feeling the effects.
For the second year in a row, real estate professionals ranked a part of the metro 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 professionals in the real estate surveyed for the nonprofit research and policy organization’s report. The Brooklyn, New York borough took the top spot in this year’s influential report and still has a buy recommendation on the list for next year.
Both reflect real estate investor attitudes that began to change in 2022 with rental growth slowing in Sunbelt markets, where apartment construction pipelines have reached historic levels. Vacancy rates are rising, which is driving down rents as the supply of new housing exceeds tenant demand.
Buy recommendations, however, were toned down in ULI’s 2024 report compared to its 2023 report. Fewer people got the buy recommendation than in ULI’s 2023 report, and the level of enthusiasm for purchasing was lower. Rising interest rates played a major role in falling apartment sales this year and suppressed investment appetite, with investors and homeowners seeing if there would be interest rate relief next year.
Yet metropolises in the Northeast and Midwest now lead the nation in rent growth, persuading investors to consider them as potential places to acquire properties if they can strike a deal that works in the current environment. Apartment construction is not as prevalent in these markets, and there is enough demand to drive up rents and lower vacancy rates.
“New York City is the tightest market in the country in terms of vacancy rate, so renters are being pushed to New Jersey, which is currently experiencing some of the highest rent growth in the country,” said Sam Tenenbaum, multifamily economist for the commercial sector. real estate brokerage firm Cushman & Wakefield.
The vacancy rate in New York is about 2.5%, according to data from Cushman & Wakefield. And that’s where vacancies were before the pandemic pushed that number up to about 3.6%.
The decline of the population of the Big Apple
It would seem contradictory that a metro that lost about 400,000 residents between 2020 and 2022 would have such a low vacancy rate.
New York City alone lost 468,000 residents between April 2020 and July 2022, according to Census Bureau data. The current population stands at 8.33 million, up from 8.8 million in mid-2020. The metro, which includes Jersey City, has about 19.6 million residents, down from 2020’s high of 20 million but still above the historical trend.
Tenenbaum emphasized that household growth drives demand for apartments, not population. In the case of New York City, rents continue to rise due to factors such as the difficulty of building new apartments combined with a low apartment vacancy rate, nominal job growth and household growth, he said.
In September, the New York City market reported year-over-year rent growth of 2.1%, compared to 1.2% growth in Miami, according to Apartments.com. Annual rent growth in Miami peaked at 17.2% at the end of the first quarter of last year.
But the vacancy rate in the Miami area, one of the beneficiaries of the migration of New York’s population, has now exceeded 7%, according to data from Cushman & Wakefield. The vacancy rate is expected to increase due to a construction pipeline of approximately 31,000 apartments, which is still at a historically high level.
The New York City subway has more than 61,000 units under construction, the highest number in the country. But the percentage of existing apartments is lower than in Miami. Cushman & Wakefield shows the New York City subway with approximately 882,000 units, compared to more than 120,000 in Miami. The company tracks properties with 50 units more, which is generally considered investment grade.
Buy or hold
In the ULI report, Jersey City earned a Buy recommendation for 2024 from 61% of respondents. Brooklyn scored 70% last year but 53% for 2024.
Madison, Wisconsin, home to the University of Wisconsin, is a close second with 60 percent. Columbus, Ohio, where construction of two Intel chip factories is underway and fueling job growth, comes in third with 59 percent.
Many Sunbelt metros have fallen out of favor this year. The Florida cities of Jacksonville, Tampa and Miami were removed from the Top 20, leaving West Palm Beach as the Sunshine State’s only entrant. Raleigh/Durham, North Carolina, Knoxville, Tennessee, and Oklahoma City, Oklahoma, were the only Sunbelt metros with at least 50% to buy.
Just 42 percent of respondents gave a buying recommendation in Nashville, Tennessee, which the report ranks No. 1 for overall real estate prospects next year and one of the hottest apartment markets in the country.
The bottom six in 2024 have recommendations above 50%. Charleston, South Carolina, San Antonio, Texas, and Charlotte, North Carolina, are tied with the highest detention recommendation of 55 percent. San Antonio was not on the list for 2023.
But 67% of real estate professionals surveyed last year had Charlotte as a buy this year, but moved to a 40% buy in 2024. Charleston got a 65% recommendation for this year. This figure also increased to 40% next year.
Carl Whitaker, director of research and analytics at multifamily software company RealPage, said he was surprised to see Charleston so low. “There’s been crazy development there, but performance has been good, even great, by national standards,” Whitaker said.