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Program Examines the Impact of Global Change on New Jersey and CRE
NEW BRUNSWICK, N.J., May 19, 2021 – Geopolitical strategist Peter Zeihan shared insights on issues ranging from shifts in globalization and demographics to supply chain trends to what’s next for New Jersey’s commercial real estate industry during the latest installment of NAIOP New Jersey’s Industry Insights Series, “Geopolitics: Impacts on CRE in Our Region.”
Zeihan combines an expert understanding of demography, economics, energy, politics, technology and security to help people understand how the world works and to prepare for an uncertain future. In 2012, he founded his own firm, Zeihan on Geopolitics, and today his clients represent an array of sectors including energy majors, financial institutions, business associations, agricultural interests, universities and the U.S. military.
The following are highlights from Zeihan’s thought-provoking presentation, during which he challenged assumptions about a wide range of global and local events.
On the Peaking of Globalization
- “From roughly 1980 to roughly 2015, the world was at this magical demographic moment when its economies were either export-led like Korea today, or consumption-led like Mexico today. It was the height of the globalization experience. Especially after 1990, when the Cold War ended, we saw explosive growth in personal incomes, in trade volumes and values and GDPs – by every measure you could imagine. We set records year after year for 35 years. This is the business environment that we all think of as normal. But it is arguably the most historically abnormal period ever.”
- “Global consumption, global production, global capital supplies, are all peaking, and none of them will recover in our lifetimes. And that was before COVID. Right now, all the consumption-led systems of the world are experiencing a recession. If you’re an exporter, you really don’t have anyone to sell to.”
On the Future of Trade
- “Donald Trump’s trade policies seem almost custom made for the world we find ourselves in. He prioritized five deals: Japan, Korea, Canada, Mexico and the United Kingdom. If you’re going to pick five countries, these are the five you want. This is the majority of the American trade portfolio. That’s it. We’re done.”
- “Both Trump’s and Biden’s trade policies are in favor of domestic purchases. Essentially, America is leaving the room, and that leaves everybody else kind of on their own.”
- “The Chinese see Biden’s policies regarding Taiwan, Hong Kong and Tibet, as well as ongoing sanctions and trade tariffs, as a full court press against their interests. And they’re not wrong. But things are pretty bad on the Chinese side of the equation. China is now the fastest aging society in the world and their population has already peaked. They know their financial model doesn’t work and their economic model is collapsing. The Chinese are closing ranks, demonizing outsiders and hunkering down for an economic collapse.”
On Shifting Demographics and the Impact on New Jersey
- “There are three things going on right now. Retiring baby boomers are moving to places that are warmer. Millennials are moving to places where they have elbow room. And no one wants COVID, so people are moving away from places that are mass-transit oriented. None of that is good for New Jersey.”
- “Roughly 35% of office workers across the country have already returned to the office. But in New Jersey, it’s only half that. And in Manhattan, it’s less than one third.There is now more available office space in Manhattan than in downtown Los Angeles, Atlanta, Dallas and Miami combined. The question in my mind isn’t whether the New Jersey/New York business model will survive – with these demographic shifts it just can’t. But that hardly means New Jersey is dead. It just means we’re entering a new chapter of industrial development.”
On the Evolution of Manufacturing
- “Before 1945, you would bring raw materials, financial capacity and technology into a set location, do the intermediate and the finished steps all in the same place, and export the end product. Then the global order came along. The whole world opened up, and we had countries around the world producing at different price points and different levels of efficiency. The result was the multi-global, multi-step supply chain we have all become used to today.”
- “In a big global manufacturing model, you get big assembly lines because you’re producing for the entire planet. That’s probably not what we’re going to be doing for long. The consumer scale just won’t be there. In many cases, smaller is going to be better. If the future is one of small runs, closer to consumers, you don’t need a massive footprint.
- “To me, a lot of this screams New Jersey. You don’t have the space for huge assembly lines and you can’t support the economies of scale in mass production. But you are at the heart of the country’s largest and densest urban conglomeration, so you’re going to need a whole lot of local production. You have rock solid supplies, your infrastructure is already in place and warehouses can be easily converted to match changing production. Supply chains just don’t get shorter than made in New Jersey.”
- “Commercial real estate as a unit is going to be fine, I think, but there’s going to be a lot of pain. Offices will turn into warehouses, and warehouses will turn into manufacturing. Remember, more stuff produced closer to consumers means a different manufacturing model. New Jersey will end up in a much better place with a much higher local value add. But the road from here to there is not a straight one.”
On the Long-Term Effect of Remote Working on Demand for Office Space
- “Let’s assume there is only a 10% reduction in man hours in offices. Imagine what that does to rents and vacancy rates. And 10% would be overly optimistic. In addition, we are going to see a more diversified American economy in the next few years. We have gone very services-heavy, because that’s what globalization made us best at in terms of value adds. But if we’re going to do more manufacturing, more of our labor force is going to be blue collar.”
- “Whether it’s competition for workers because of the changing sectoral balance or changing work habits, both of those would tell me we’re going to need fewer white-collar offices. That doesn’t mean these office buildings go away, but it does mean that large portions of them will probably be repurposed. And there’s no reason why that can’t happen.”
On How Investment in Green Energy Will Impact New Jersey
- “The short answer is – it shouldn’t. Don’t take this the wrong way, but this is not a sunny, windy place. When it comes to local generation, I’m sorry – you should really not expect it to be an appreciable amount of your power generation outcomes.”
- “What we are seeing is a change in how the federal government is regulating finance in the power sector because they are trying to push people in this direction. So, we are probably going to see some tweaks courtesy of Treasury in order to allow states like New Jersey to play across the country in ways you really haven’t been able to before.”
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