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ELMWOOD PARK, NJ-Although some portions of the state registered occupancy and rental gains, the apartment sector in the Garden State remains at the mercy of mounting job losses. So says a second-quarter review of the marketplace by Marcus & Millichap Real Estate Investment Services.

Those employment reductions have resulted in a slowing of leasing activity and concessions that have topped 4% of asking rents for the first time since 2003. Marcus & Millichap estimates that 105,000 jobs will be cut this year, a reduction of 2.5%. Northern New Jersey recorded the heaviest losses over the past year, with total employment in the region falling by 53,400 workers. There were 26,500 fewer positions in central New Jersey during the same period, while employers cut 17,300 workers in the southern portion of the state.

The largest year-over-year decline in employment was registered in the financial services sector, which shed 13,100 positions, a 4.9% drop. And, as Marcus & Millichap points out, consolidation among major pharmaceutical companies in the state means further job cuts.The statewide vacancy rate now stands at 4.7%, which represents a year-over-year increase of 110 basis points and an 80-basis-point rise in the first three months of the year. Continued softness in demand will eventually push the vacancy rate up 150 points to 5.4% by year’s end, Marcus & Millichap asserts.

Although both asking and effective rents both climbed 2.2% in 2008, asking rents dipped 0.8% and effective rents shrank 1.2% in Q1. Looking ahead, Marcus & Millichap predicts that asking and effective rents are expected to retreat 2.1% and 3% to $1,280 per month and $1,229 per month, respectively, in 2009.

As for investment activity, lack of credit continues to keep a lid on acquisitions, with current activity at a level last recorded in 2003, according to Michael Fasano, regional manager of the New Jersey office of Marcus & Millichap. Statewide, the number of apartment transactions declined 21% over the past 12 months.

Yet, Fasano says that a 13% year-over-year drop in the median price in central New Jersey has led to a 16% upswing in transaction velocity in that part of the state while other regions saw less activity. According to the firm, demand for local apartment properties has resulted in a 4% jump in median prices to $82,778 a unit.

In the months ahead, some buyers will target Bayonne in Hudson County, where demand for rental properties is strong due to its proximity to Manhattan. Rental rates there are below that of Jersey City and Hoboken and therefore, should lure in cost-conscious young professionals.

Completions are forecast to total nearly 2,250 units in 2009, compared with 1,950 units last year. By region, over 2,000 rentals will be added to northern New Jersey’s rental stock, while 244 apartments are expected to be delivered in central New Jersey. And even in the face of an economic downturn, more than 3,800 units are on the planning board, although none currently have a start date.

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