By Michael G. McGuinness
Our state is making headlines these days in a number of good ways. Food & Wine Magazine just named New Jersey the best pizza state in America. We beat out the U.S. Census Bureau’s population projections by 4.5 percent with 9.2 million residents, the highest percentage delta of all states. New Jersey homebuilders are on target to complete 15,500 new rental units this year that will house as many as 32,000 people, according to the National Apartment Association and CoStar Group, double the number built in 2019, according to The Star-Ledger’s George Jordan. And, the COVID-19 rate of transmission is in free fall (just 0.34 as I write, a level not seen since April 2020), thanks to vaccinations combined with continued mask use and social distancing.
The logistics sector continues to fuel New Jersey’s economy, accounting for nearly 12 percent of the state’s GDP and workforce. Good-paying construction, trucking and warehouse jobs are our second- and third-largest employment sectors. Nearly $4.4 billion has been added to state and local tax revenues in the 31-county region, as surging volumes of freight are imported and exported by ship, rail and truck to consumers around the globe. The Port of New York and New Jersey is the largest operation on the Atlantic Coast and the second largest container port in the United States. The pandemic has only underscored the importance of our supply chains’ ability to provide critical goods and pivot to meet shifting demands.
Why is all this good stuff happening in New Jersey? One contributing factor is certainly geopolitics, the study of how place matters. While this term is more often used to describe countries and explain the origin and source of their wealth, culture and military strategy, we can also see how this applies at the state level. Peter Zeihan, an international strategist, speaker and author of several books including “The Accidental Superpower and Dis United Nations,” makes a compelling case that a region’s geography matters more than ever in a de-globalizing world. He cites three key geographically based factors: (1) Balance of transport — ease of moving people and goods (rail, waterways and roads) and easily protected borders; (2) Deepwater navigation — to promote trade and wealth; and (3) Industrialization — use of machinery to increase worker productivity. Our state and country have performed very well on these fronts. Learn more and get a chance to speak with Peter Zeihan at NAIOP NJ’s May 12 virtual program Geopolitics: Impacts on CRE in Our Region (4:00 PM, register now).
But how long will the good times last in our logistics state? Clearly, demographics also play a huge role in our economy and the trade of manufactured goods. Given that the millennial generation is approaching its peak consumption years, New Jersey will likely have at least another good five-year run. With the amount of land suitable for logistics diminishing, it is incumbent on the industry, supply chain professionals, planning organizations and local government agencies to collaborate so that our state can remain a powerhouse for this sector of the economy.
Mark Levinson, author of “Outside the Box: How Globalization Changed from Moving Stuff to Spreading Ideas,” elaborates on this and other contributing reasons in a Washington Post article. Data shows that many households today increasingly favor services and experiences over goods. As technology advances, businesses are putting more investment dollars into research, software and intellectual property and less into machines. Globally, our aging population is spending less on goods and more on restaurant meals, medical bills and leisure activities. Half the people in Japan and Germany are over 47, and in Russia, China and the United States, the median age is approaching 40.
Other factors suppressing the demand for physical products, cited by Levinson, are the transformation of goods into services, and the way manufacturing increasingly requires fewer people. Think digital downloads, streaming services, cloud storage and the sharing economy. By squeezing out labor and global supply chains, it becomes economical to produce customized goods on a small scale close to the end users, affecting the flow of merchandise trade. The threats from climate change and mandates for reduced greenhouse gas emissions are also forcing companies to minimize the environmental impacts of their supply chains. This means that manufacturing in countries with lax standards may lose appeal. This underlying current of other factors affecting global trade patterns, may take years to play out, while demographics, foreign relations and the availability of capital remain the lead drivers of trade. Nevertheless, there is pressure to move to shorter supply chains, more focused on high value-added industries (Americans) located closer to home and less dependent on other countries from design to materials to replacements.
Everyone can probably agree that the pandemic has amplified the need to be more resilient, resourceful and prepared for the next disruption. The more we can research, design, manufacture and grow closer to home, the better. President Joe Biden apparently agrees. On April 27, 2021, he appointed Celeste Drake, one of the labor community’s most experienced trade specialists, as the first Made in America director, a position within the White House budget office. Biden created the post in late January when he signed an executive order aimed at toughening requirements for federal agencies to buy American for the hundreds of billions of dollars in purchases they make each year.
Demand for goods and services will also remain high in the short term, thanks in large part to the federal economic stimulus bill, which will help add almost 1.5 percent to the global economy’s growth rate this year, according to the Organization for Economic Cooperation and Development. By the end of next year, global output is projected to be around $3 trillion larger than it would have been absent new U.S. spending. European Central Bank chief economist Philip Lane stated that President Biden’s new spending “will be a significant engine for the world economy.”
One thing we know about good times is they don’t last. I hope New Jersey will deploy its cash windfall — from the federal stimulus and recently borrowed funds — wisely to create a more sustainable and resilient economy that works for all Garden State businesses and workers. Investing in our infrastructure, information technology and educating and retraining our workforce would be an excellent place to start. Taking these steps now will help us to better weather the inevitable future disruptions.
Michael McGuinness is CEO of NAIOP New Jersey and has led the commercial real estate development association since 1997. NAIOP represents developers, owners, asset managers and investors of commercial, industrial and mixed-use properties, with 830 members in New Jersey and over 19,000 members throughout North America.