The New Jersey Chapter of NAIOP held their annual meeting last week. They are the largest commercial real estate organization in North America. In a packed house at the Short Hills Hilton, industry leaders gave their projections for 2020. We have highlighted four major takeaways from the meeting.
1. Economic Growth will Slow in 2020
Is a recession looming? Just as the real estate market across the Hudson is slowing, so is New Jerseys’. Both regionally and nationally, experts are forecasting less growth than in 2019. The Federal Reserve predicts a 24% chance of a recession by the end of the year.
“The regional economy has had a great period of economic growth since the 2008/2009 recession. Now, the need for additional labor mobility is key to sustain some of this momentum. As we could see over the last ten years, residential real estate growth has centered around PATH stations in Hudson County. In fact, the catchment areas immediately around those PATH stations have experienced as much residential growth as the rest of Hudson County combined. That is just an example of the importance transit and other transportation modes play in the continued growth of the regional labor market.” Alexander Heil, Chief Economist of Port Authority of New York & New Jersey
Manufacturing, a huge contributor to the economy, is already in recession and employment growth has remained stagnant. Don’t forget the trade tariffs, which will negatively affect business as usual. A bright side, healthcare, education and technology will continue to grow.
2. Industrial Sector Continues Growth
Industry is booming, for now.
“During the 40 years I’ve been in this business, I’ve never seen anything that rivals the velocity and change we’ve seen in the industrial market. Vacancy in Central and Northern New Jersey is 2.7% and the average rent is $8.90 per square foot. Of the nine million square feet delivered last year, 60% was pre-leased. We‘re seeing things that are unprecedented and I don’t know how long it’s going to last.” Ed Russo, CEO, Russo Development
“Over the past 12 to 24 months, it’s been shocking how much investment, land values and rents have increased. We believe it’s going to be unparalleled in 2020, and we’ll see $20 per square foot rents in prime states across the country when in the past we couldn’t get $10. What we don’t know is whether it’s the beginning of a trend with a lot of runway or if the market is overheated.” Ed Russo, CEO, Russo Development
3. Millennials Migrating to the Suburbs
Millennials are aging, and 5 years ago it may have been vogue to have a tiny apartment in the city with no belongings. But now, Millennials are approaching their 30’s and looking for more space for their growing families.
“While Millennials still want to be in urban locations, they do want more space when they start to have families. So, this is definitely a trend that is starting to happen. However, we’re also seeing more empty nesters downsizing and looking to rent.” Andrew Merin, Executive Vice Chairman, Cushman & Wakefield
“We’re seeing significant migration of Millennials to suburban areas, especially in the north where there are strong school districts”. Ed Russo, CEO, Russo Development.
4. Lack of Incentives Hurting Redevelopment
Ever wonder why New Jersey is the mall capital of America? It’s because New Jersey doesn’t have sales tax on clothing. The point is, like it or not, incentives work.
“Incentives, or the lack thereof, seem to be hurting real estate and the way businesses outside the state view us.” Panel moderator Tom Bergeron
“There are going to be incentives, probably sometime this spring, and they will likely be broader than what was first proposed.” Chris Paladino, President, DEVCO
The panelists unanimously agreed that incentives are critical to redevelopment in cities such as Newark, Jersey City, Trenton and Paterson.
“Pulling these incentives is going to hurt,” Andrew Merin, Executive Vice Chairman, Cushman & Wakefield
“We’re already seeing it in Jersey City, where there had been such progress but now things are terrible in the office sector.” Chris Paladino, President, DEVCO
“There are challenges in places like Paterson. If you look at some of the special things that were done in Camden and want to do it in Paterson or Trenton, which are really struggling, you’ll need to decide it’s an important matter of public policy and create incentives no one else has.” Chris Paladino, President, DEVCO
Do you feel we’re headed towards a recession in 2020? Let us know in the comments below.
For more information on the commercial real estate outlook of our region visit NAIOP New Jersey.