If you are a renter or landlord reading this blog article, you are well aware of what rental rates are doing. Tenants are being budgeted out of units that only one year ago they could afford. Today, rents are up almost 8% in Hoboken and 8% in Downtown Jersey City. New Jersey Real Estate Guys tracks rental unit absorption and we can confidently say that our metro area will see some more rent growth in 2014.
As with all pricing, rent is a function of the interaction of supply and demand. In many markets, construction has not kept pace with job growth, and rents continue to climb. Compounding that is an increase in renters in general as mortgage lending standards restrict many from becoming homeowners. In the past, markets have been overbuilt and rents have retracted. We are experiencing a 180 degree turnaround where we believe is the beginning of an upward trend toward another cycle.
As stated, in 2014, we predict that rents will increase another 7-10% and ease during Q1 2015. Our prediction is predicated on the trend of income and employment. If rents continue to increase beyond 2014, employment and wages must increase.
Some investment players are already moving out of purchasing existing buildings. Capital is moving out of new purchases and playing in other sectors such as new development. Smart money will take a slightly lower yield and risk their bet on built and stabilize. Inflation will hit apartment owners, but, ultimately, the sector is in a good position to handle higher prices. If we look at what inflation will do, it will increase rents, but it will also increase expenses and interest rates as well.
There just doesn’t seem to be much vulnerability heading into 2014. It all depends on what 2015 brings and how much more steam the economy can pick up. With GDP at sluggish movement, the economy has room to improve a lot more, putting property owners in a more favorable position.