CoStar Insight: Vacancies Are Projected to Reach Record Highs
Every scenario in Oxford Economics’ April forecasts predicts significant job losses in the Northern New Jersey area in the second quarter. The apartment market will likely struggle as a result, and even in the most optimistic scenario, vacancies could rise to a record high.
In the base case forecast scenario, North Jersey will steadily add jobs back in the second half of this year, but still lose a net of more than 80,000 jobs in 2020. Multifamily vacancies are projected to steadily rise from a current rate of roughly 5.3% to a peak of 9% at the end of the third quarter of 2021. This would be the highest vacancy rate reached in the market in more than 20 years. By comparison, vacancies peaked at 5.4% during the Great Recession.
The moderate downside scenario predicts a similar economic downturn in the second quarter of 2020, but a slower recovery in the second half of the year. Net job losses in this forecast are set to approach 150,000 by the end of the year. Demand losses will be more severe over the next few quarters and vacancies will peak at just under 10% at the end of the third quarter of next year.
The severe downside scenario also predicts a similar downturn of roughly 200,000 net jobs lost in this quarter, but a more protracted downturn is forecasted. In this scenario, losses will continue through next year, and a net of over 250,000 jobs will be lost throughout 2020 and 2021. Vacancies won’t peak until reaching 11% at the midway point of 2022.
Vacancies are projected to hit peak levels even in the more optimistic moderate upside scenario. In this forecast, the economy will fully recover from this quarter’s job losses by the end of the year. Apartment demand is still expected to be negative throughout the rest of 2020 and then trail supply additions for several quarters into 2021. Vacancies won’t peak until exceeding 8% in the third quarter of next year.
North Jersey’s apartment market has recorded impressive growth over the last few years, but fundamentals were beginning to stress even before the pandemic.
Vacancies increased by more than 150 basis points from the second half of last year through the end of the first quarter of this year as demand did not keep pace with a large supply wave. The market remains near peak construction, and the coronavirus threatens to stunt demand. Household formation will likely be limited by social distancing policies in the near term and for economic reasons in the longer term.