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NAIOP NJ Annual Meeting includes Economic Outlook and Election of 2020 Officers and Trustees

SHORT HILLS, N.J., Jan. 30, 2020 – Economic growth will cool off and the industrial market will stay hot in 2020, according to speakers at NAIOP New Jersey’s Annual Meeting and Commercial Real Estate Outlook. A sell-out crowd of over 300 industry professionals attended the event at the Short Hills Hilton, which looked at what the future holds for each segment of the CRE industry and included the election of the commercial real estate development association’s 2020 officers and trustees.

Chapter president Eugene Preston of Dermody Properties said, “It’s been another very strong year for NAIOP in every way.” He cited the association’s strong membership growth and expanded education efforts for industry professionals, as well as a number of advocacy victories. Key among them was improving the Site Remediation Reform Act and halting a bill concerning independent contractors that would adversely affect truckers that service New Jersey’s ports.

“Our priorities for this year include securing the next generation of incentive programs, curbing reverse tax appeals and continuing to advocate for funding the Gateway tunnel program,” said Preston.

Economic Growth Expected to Slow in 2020

Alexander Heil, chief economist for the Port Authority of New York and New Jersey, presented an overview of the economic outlook for the year ahead. “I’m the guy who a year ago was talking about a recession in 2020. One would have thought the current trade policy placing tariffs on hundreds of billions of dollars of imports would have affected the economy more.”

Heil said consumers came to the rescue of the American economy in 2019, and confidence has trended up for a considerable length of time. However, confidence among CEOs has deteriorated, and business investment that typically results in expansion and growth has declined. This is one of a number of factors pointing to a possible recession later this year.

“The Federal Reserve in New York’s model, which is a reliable predictor, still sees a 24 percent recession probability in 2020, which is down from 35 percent,” said Heil. “Manufacturing, which is a large contributor to the economy, is already in recession and employment growth has stalled. In addition, the federal government is cutting back after a period of significant spending.”

He cited additional factors ranging from the rising federal deficit and a decline in the rate of job creation to the cost of climate change and wage gains that have not kept pace with inflation. Stopping short of predicting a recession in 2020, Heil said, “We are not going to be seeing as much economic growth as in 2019, both nationally and regionally.”

Regionally, he outlined as contributing factors “a mosaic of important economic issues,” including declining labor force participation, housing affordability, a shortage of skilled workers in specific sectors and tax law changes that have adversely affected the local real estate market. New Jersey is expected to continue to lag behind New York and the region in employment growth, but recent gains seen in non-finance sectors such as healthcare, education and technology will continue. “The regional labor market is based on trans-Hudson commuting, and an efficient transportation infrastructure is critical,” Heil noted.

CRE Outlook: Incentives Remain Essential for Redevelopment

ROI-NJ Editor and Chief Content Officer Tom Bergeron led a panel discussion of top industry trends featuring Christopher Paladino, president of DEVCO; Andrew Merin, vice chairman of Cushman & Wakefield; and Ed Russo, president of Russo Development.

Bergeron noted, “Incentives, or the lack thereof, seem to be hurting real estate and the way businesses outside the state view us.” Paladino agreed, saying, “There are going to be incentives, probably sometime this spring, and they will likely be broader than what was first proposed. But there has been some damage done, including to the reputation of the New Jersey Economic Development Authority (EDA). I’m fearful that when we do have incentives, we will have a long climb back.”

Russo added, “It’s not incentives or bust. Obviously, they are important and there is tremendous uncertainty surrounding the next incentives to come out of EDA. But if it takes another couple of months, it doesn’t mean we can’t have a positive first half of the year.”

The panelists agreed that incentives are critical to redevelopment in cities such as Newark, Jersey City, Trenton and Paterson. “Pulling these incentives is going to hurt,” said Merin. “We’re already seeing it in Jersey City, where there had been such progress but now things are terrible in the office sector.”

“There are real challenges in places like Paterson,” added Paladino. “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.”

Russo said residential development in Paterson is difficult for a number of reasons, but the potential in Newark is tremendous. “There’s been a lot of talk about redevelopment, but not a lot has been built relative to the size of population. That’s absolutely going to change in the next one to three years.”

Industrial Boom Continues, Millennials Migrating to the Suburbs

Asked if the industry can expect the current boom in the industrial sector to continue, Merin said, “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.”

Russo added, “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.”

Millennials are continuing to have an impact, not only on the office sector, but the residential real estate market. “We’re seeing significant migration of millennials to suburban areas, especially in the north where there are strong school districts,” said Russo. “People want less expensive housing and to live near where they work.”

Merin agreed. “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.”

Paladino expressed concern about what he sees as one of the driving forces behind the migration. “Unless we do something about public education in urban areas, no family with children will stay. It would change the economics in cities if we could figure that out.”

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Photo caption: (L-R) Panel moderator Tom Bergeron, Editor, ROI-NJ; Andrew Merin, Executive Vice Chairman, Cushman & Wakefield; Ed Russo, CEO, Russo Development; Alexander Heil, Chief Economist, Port Authority of New York & New Jersey; Chris Paladino, President, DEVCO

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