By Michael G. McGuinness
With the incredible growth of this sector in recent years, could logistics help make New Jersey cliff-proof? I think so, but only if we take steps to address serious workforce challenges, especially those related to affordability and accessible transportation. With the increasing likelihood of a recession in 2020, we need to act now. The importance of the port region to New Jersey’s economy cannot be overstated, and continued investment is critical. We also need to solve the “last mile” conundrum that presents transportation and lifestyle challenges.

Even at the height of the Great Recession, jobs directly associated with port activity increased by nearly 3.5 percent from 2008 to 2010. U.S. e-commerce sales increased 16 percent in 2017 and, according to research and advisory firm Forrester, will rise by 9.3 percent annually over the next five years to top $523 billion. That rate of growth translates to a demand of 80 million square feet of additional space, which could generate another 112,000 warehouse jobs by 2020. Other estimates place new space needs as high as 139 million square feet, which could generate 195,000 jobs. It’s estimated that about 10 percent of these jobs will need to be located in smaller facilities under 100,000 square feet to support local delivery in key urban markets.
Sounds fantastic, but where will all these new employees come from and how many will have reasonable access, the right skillset and/or financial interest in this type of work? As of April 2018, American companies reported roughly 6.7 million job positions remain unfilled. Why the shortage? JLL’s May 2018 report, “Where are all the workers?” reviews the underlying issues and converging trends, including: (1) Many lower skilled men have been sidelined by technology, automation and offshoring, and lack qualifications for higher skilled jobs; (2) Many qualified women are temporarily out of the workforce as they are caring for children or aging parents; (3) “Credential creep” causes more firms to unnecessarily require advanced degrees or training, thereby limiting the pool of available applicants; (4) Occupational licensing barriers can be costly and burdensome, thereby limiting applicants; and (5) Geography and cost — many unemployed people do not live near job openings, they can’t afford housing and face limited transportation options. New Jersey must allocate enough resources and incentives to solve these problems.
New Jersey is especially burdened by high costs for housing, insurance and taxes and a lack of transit options. Thanks largely to a dysfunctional pension system, New Jersey is drowning in more debt than any other state in America, and no state is less prepared for the onset of another recession. That is why I am looking forward to Senate President Stephen Sweeney’s Economic and Fiscal Policy Working Group report due out this month. This report will address the potential that consolidation offers to bring property taxes to more sustainable levels and curb tax rates. Other recommendations may focus on overhauling retirement benefits, merging towns with fewer than 5,000 residents, consolidating school districts, adding interstate tolls, allowing local sales tax surcharges to offset property tax cuts and capping payouts to retiring public workers for unused sick leave, among other things. This is music to my ears. These options are worthy and achievable, provided we can get past the drama, politics and self-serving interests. Keeping and attracting new private-sector jobs and a future workforce and improving our business climate is all about cutting costs and providing certainty to existing and prospective New Jersey businesses.
We also need to improve the way goods move from the warehouse to the consumer, a.k.a. “the last mile,” because speed to market is critical to customer satisfaction. Doing so will dramatically lower energy and product costs, since transportation is 55 percent of overall expenses. With available land becoming increasingly scarce, smaller multistory distribution and fulfillment centers in urban infill areas, that are closer to major labor pools, make sense. Equally important is a reliable supply of energy to power the growing number of refrigerated and cold storage warehouses needed to meet the increased online demand for same-day delivery of food and pharmaceuticals. There is also the overarching dilemma of how to address the heavy volume of delivery vehicles and packages (over 5 billion delivered annually by Amazon Prime alone) putting massive pressure on local roads, shopping districts, parking spaces, airports, post offices, office buildings, recycling centers and landfills, as well as multifamily leasing offices for receiving rooms and/or storage lockers.
More than a decade after the housing bubble burst and the U.S. entered the worst period of economic decline since the Great Depression, the economy is still seeing significant growth. U.S. gross domestic product continues to grow at a rate of over 2 percent in 2018 and is expected to see continued growth of 3 percent or more over the next few years. “The economy is growing above its potential growth rate, unemployment is steadily declining, spending is rock solid and business investment is firming,” said Moody’s Analytics Director of Realtime Economics Ryan Sweet. “This bodes well for commercial real estate.” Despite strong economic activity, a tightening monetary policy, global protectionism and a fiscal policy hangover could trigger a recession as early as 2020, but it is not expected to be severe or prolonged, with a revival in 2021.
When the next recession hits, New Jersey can come out shining if we focus on our core competencies. The Transportation, Distribution & Logistics (TDL) sector is certainly one of them. We need look no further than I.CON 2018, the industrial conference hosted by NAIOP at the Hyatt Jersey City in June, which attracted record numbers of investors, developers and businesses in the logistics industry from throughout the U.S., Canada, Brazil, Columbia. Mexico, and Costa Rica (due to unprecedented demand, I.CON returns to New Jersey Sept. 12- 13, 2019). If we let common sense prevail, collaborate as a region, transcend our parochial attitudes, and plan long-term beyond the next political election, the recession may not even be noticed. Time to get serious and do the right thing. We can do this — we owe it to posterity.
(Considerable information for this article was obtained from NAIOP Corporate’s website and blog posts at www.naiop.org)
Michael McGuinness is CEO of NAIOP New Jersey, where he 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.