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Leaders Share Perspectives on What Industry Can Expect in Second Half of 2021

NEW BRUNSWICK, N.J., June 3, 2021NAIOP New Jersey’s annual “Mid-Year Economic & Markets Outlook” brought together industry leaders to share their perspectives on how current trends are impacting commercial real estate and what the industry can expect in the second half of 2021. The virtual event explored issues ranging from the speed of the economic recovery to capital investments in industrial, residential, retail and office properties.

Economy Recovering Faster Than Expected

Duncan Kisia, assistant director of Planning & Regional Development and lead economist for the Port Authority of NY & NJ, provided an overview of the impact of the COVID-19 pandemic on New Jersey’s economy and expectations for a full recovery.

“Our region was heavily impacted early on by the pandemic,” said Kisia, noting that initial recovery trends in the summer of 2020 were eliminated by the second wave, which peaked in January of this year. “Now we are seeing a return to some of those early recovery trajectories. Ultimately, this might offer an opportunity for the kind of economic recovery that, combined with vaccinations, might actually lead us out of this recession and hopefully to better times ahead.”

Key takeaways included the following:

  • Rough estimates indicate that the herd immunity threshold of 70% to 85% that would allow people to return safely to work and other activities could be met in the next two months in New Jersey. This does not include vaccinated children, which could provide an added boost to the recovery.
  • The speed of the economic recovery has been stunning, with the stimulus having a huge impact. Projections are surpassing pre-pandemic growth rates nationally.
  • A substantial increase in consumer spending on durables is essentially what is keeping the economy going, and it has helped fuel a surge in Port activity over the last 12 months. Spending on services and travel is expected to pick up in the second half of this year.
  • Subways, commuter rail and PATH saw gentle summer recoveries that petered out as cases rose. Usage is expected to pick up as cases come down from this year’s high.
  • On the trans-Hudson side of the travel market, there was a substantial bounce-back in auto traffic following the initial surge of cases, particularly in commercial vehicles, as ecommerce drove much of the activity in the region. Bus traffic also bounced back faster than rail and fixed transit modes.
  • With the benefit of vaccine progress nationally, 45% of workers could be back in offices by September of this year. Office occupancy rates are lowest in dense, transit-heavy cities like New York.
  • In New Jersey, the short-term loss in physical occupancy rates is estimated to be between 12% and 20%. Kisia believes this will slowly decline to 6% to 10%.
  • Professional services and financial activities have the highest proportion of people working remotely, and the trans-Hudson market has a heavy mix of these digitizable industries. The region may see a higher spike in remote work long-term (2% to 3%) compared to other parts of the country.

Mid-Year Markets Outlook

Jeffrey Dunne, CBRE’s vice chair of Capital Markets & Institutional Properties, led a discussion focused on CRE trends and expectations through the balance of 2021. Addressing the state of the industrial, residential, retail and office markets were Lauren Holden, head of Retail Asset Management at Clarion Partners; Alex Klatskin, general partner of Forsgate Industrial Partners; Jonathan Kushner, president of Kushner Real Estate Group; and Gus Milano, president and chief operating officer of Hartz Mountain Industries, Inc.

The Rapid Evolution of Retail


  • “Our suburban community centers, the food retailers, have performed really well. Food retail has been on the beneficial side of office workers working from home.”
  • “The buy online, pickup in-store or curbside trend is definitely here to stay. In the last 14 months, physical stores have proven how important they are with servicing omnichannel fulfillment. Target fulfills about 75% of their ecommerce orders out of stores.”
  • “We have a couple of clients saying they may want to redirect investments towards retail to get more yield. Some clients still want to reduce the allocation to retail, but the resurgence of retail capital markets – I have never seen it change so quicky. Grocery-anchored deals are so in favor right now.”
  • “A year ago, it was all about entering into deferral agreements and trying to incorporate flexibility into future. Right now, we’re doing a lot of leasing activity. Retailers are investing capital into performing stores, and we’re working with them on right-sizing and reimagining store layouts and parking areas.”
  • “Medical is very active, and so is entertainment. We are coming across new uses that are not black and white, and trying to get a lot of them approved with conventional big box retailers.”

Managing Tighter Margins in Multifamily

  • Kushner: “Costs are up 35% from a year ago and materials are harder to get. Lumber is just one issue – bathtubs and drywall are hard to find and copper prices have tripled. We’re breaking ground on a warehouse and costs are up 20%, but rents are up proportionately. With a garden apartment community, where costs are up 30%, you can’t get 30% more in rent. But we believe in the growth of the state, and we’re biting the bullet. We have not stopped a single project.”
  • Milano: “Suburban apartments were pretty much unaffected. It was a completely different story in urban markets like Hoboken, Jersey City and Weehawken, where occupancy fell into the 80% range before bouncing back to the mid 90s. We have a few shovel-ready projects on the waterfront that we have put on hold until the market stabilizes, hopefully by the end of the year. We are moving forward with a suburban project that has a PILOT program, but margins are much tighter than on the industrial side.”

Awaiting the Return of Office Tenants and Workers

  • Kushner: “I was pleasantly surprised about rent collection across asset classes during COVID. Our office tenants paid their rent, stayed in business largely and our buildings stayed full. People are talking about contracting, but it may be less in the suburbs than in the cities. I think in the next two to three years everything will go back to the way it was in terms of people going to work.”
  • Milano: “People are recognizing they need to return to work and are starting to make that move. If industry leaders start requiring people to get back to the office, things will change rapidly. People need to be comfortable, but in the next few months I think we’ll see a big turnaround.”
  • Holden: “Most of our investors are not ready to invest in office. There is still some concern as to what things will look like in the future. We have to get our tenants and workers back in the office.”

Rising Construction Costs May Slow Industrial Development

  • Klatskin:
    • “Industrial rents are up 35% in the last year, outpacing my wildest dreams. But we are seeing them spike in an unsustainable way relative to demand. Maybe construction prices going up are a good thing, because it moderates the supply side. Developers have the ability to overbuild a market and I think we’re headed towards that end. Hopefully construction prices will hold that back.”
    • “Amazon is part of the driver of the reconfiguration of the consumer supply chain, but what’s happening with them is dangerous. They just have to take their foot off the accelerator a little bit and it will have a massive effect on supply and demand. We are optimistic because industrial has been our bread and butter for 50 years, but at the same time we are bracing for the impact if it happens.”
    • “With the surge in demand there have been mistakes. There were some legacy sites redeveloped that are causing truck traffic problems in communities that should never have been there.”
  • Milano: “The opportunities have become much less. There’s tremendous pushback now on warehouse development in the state. Communities that would have welcomed a big box warehouse two years ago are no longer interested. That’s going to create some issues going forward.”


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