State of the markets
Overall, 2016 should be another solid year for most forms of real estate in the Northern / Central NJ region. The market for rental housing is still on blistering pace for 2015 with dozens of developments underway, mostly centered around transit hubs. Further, financing for these deals is very competitive with borrowers offering interest only loans and buyers willing to accept equity yield rates in the 5% to 7% range. This part of the housing market is anticipated to remain white hot going into 2016 as many municipalities want growth and higher ratable base; however, have over burden school districts. These towns are circumventing this by approving one and two bedroom apartment developments, which are traditionally ideal for rentals in order to prevent large scale increases in student populations. Based on conversations with developers and our appraisal work flow, the “for sale” market appears to be once again gaining momentum, in particular in Central NJ and suburban areas located away from transit hubs where there is significantly more land to be developed. The National Association of Home Builders indicates that builder’s confidence in August is at a ten year high at 61. Some reasons for the turn in sentiment include lower and lower commodity prices for the national home builders who can really take of advantage of their scale. Further compounding the improving sentiment is the likely interest rate increases that will occur either in September of this year or 1st quarter of 2016. This anticipated increase in interest rates should bring capitalization rates up while at the same time reminding renters that these historic interest rates won’t last forever. Finally, a trend in new construction that I’ve been seeing over the past few months while interviewing selling agents is that a new buyer has entered the market, those being individuals who previously had short sales, bankruptcies or foreclosures from the great recession. This group is rather large and having their presence slowly come back in the market should provide an additional catalyst.Retail market conditions are expected to remain strong as the economy and consumer spending improves with the only negative being A&P’s bankruptcy which will flood the market with big box space. The leasing market continues to shift to food service as a number of traditional retailers are going on-line with a smaller and smaller presence in the brick and mortar stores. Shopping centers that cannot accommodate food service tenants whether by zoning or parking will be at a loss with higher vacancies and lower lease rates. In regards to transaction volume, there is little quality inventory with investors bidding up most stabilized assets which will continue to compress cap rates. The industrial markets should continue to show improvement, in particular Port properties. Office space will continue to lag the market with no end in sight. Vacancy rates will likely continue to rise. The self-storage market has been showing steady improvement over the past few years, in particular the shore regions affected by Superstorm Sandy and those facilities close to transit villages whereby tenants don’t have enough space for their worldly possessions. This rise in demand for storage space has lead a number of facilities to expand and at least 5 new ones slated for completion in 2016. James Meehan is vice president and senior valuation consultant at ARD Appraisal Co.