What does 2018 have in store for New Jersey’s commercial real estate market?
We put out a call to the industry and were fortunate to recruit some of the state’s most influential developers, professionals and thought leaders to give us their predictions for the year ahead.
You can find their insights and more in our special 2018 Market Forecast.
Peter Cocoziello, CEO and President
For years, New Jersey’s real estate community has had its collective eyes on the reimagining of single-tenant corporate campuses such as the former Sanofiheadquarters in Bridgewater, Bell Labs in Holmdel and the Hoffmann-LaRoche campus in Clifton and Nutley. While each of the massive undertakings are currently in different stages of the redevelopment process, 2018 is likely to bring major progress for each of these mini-metropolises in the suburbs. Thanks to the state’s extensive network of public transportation and technology, as well as the rise of the future of autonomous vehicles, artificial intelligence and the so-called “internet of things,” these redevelopment sites and their work-live-play environments will be increasingly in demand.
If New Jersey can overcome and find a positive solution to its tax burden with proper incentives, 2018 may well be the year when companies begin to bring jobs back to the suburbs.
1041 U.S. Highway 202/206
Bridgewater, NJ 08807
Jose Cruz, Senior Managing Director
One of the trends we see developing is the demand for Class A multifamily housing becoming stronger as investors like the pricing power available to them in premier assets and also appreciate the lack of capital required for newer quality assets.
Retail trends for 2018 are more difficult to predict. We see pent up demand for Class A quality retail and note that core buyers are having a tough time finding product that fits. Some equity funds are underweighted in retail and are looking for the best-of-the-best these days.
We are expecting the office market in New Jersey in 2018 to continue expanding in terms of product offerings, buyer pool and tenants to lease space — all resulting in improved pricing for this coming year.
The industrial market is red hot right now and we do not see that changing, but there is a question as to whether investors will continue to push pricing levels above $200 per square foot.
200 Campus Drive, Suite 410
Florham Park, NJ 07932
Morris Davis, Paul V. Profeta Chair of Real Estate
Nationally, I expect the economic recovery to continue, bolstered by the massive cut to the corporate tax rate. There is major downside risk. Professionals working in financial markets say that assets are “priced to perfection.” Pension funds, sovereign wealth funds and the Chinese are propping up asset prices to uncomfortably high levels. If markets price risk using historic norms, stock prices and real estate values will decline and a recession will follow — maybe a 30 percent chance. For New Jersey, I am in a “wait and see” period. I hope that the elimination of most of the state and local tax deduction will incentivize our state and local agencies and governments to act more efficiently. If the incoming legislature passes a $15 minimum wage, a tax on millionaires, etc., then growth prospects for New Jersey are subpar.
494 Broad St.
Newark, NJ 07102
Steven Denholtz, President
As we enter what appears to be the top of the commercial real estate market, investors continue to make smart and diligent capital allocation decisions based on lessons learned from the previous cycle. In their efforts to well-position their portfolios for possible uncertainty in 2019, investors are seeking to deploy capital into projects that provide opportunities for stable, long-term growth. I foresee a growing appetite for ground-up development, particularly in industrial, as opportunities in the value-add market become more cost-prohibitive in the face of a limited available supply and heightened demand. As investors continue to search for value heading into 2018, those firms that can find creative ways to deliver that value and position their portfolios for future market turbulence will be the ones able to capitalize on a strong, yet crowded, market in 2018.
14 Cliffwood Ave., Suite 200
Matawan, NJ 07747
Eugene Diaz, Principal Partner
Following two years of historic multifamily rental deliveries, 2018 will bring continued robust performance in the multifamily property sector as new supply is slowing down faster than demand. We should see a resurgence in for-sale townhome and condominium development since years of cumulative rental rate increases have narrowed the rent vs. own gap, and we are at historic supply lows for new for-sale product. Also, anticipate an uptick in assisted living development to meet New Jersey’s graying demographic. Tempering all of this, however, is the impact that changing federal tax policy as well as potential New Jersey tax changes may have on the state’s homeownership and rental affordability. As currently proposed, rentals would stand to benefit, and housing prices and demand could fall.
200 Broadacres Drive, Suite 180
Bloomfield, NJ 07003
Jack Fersko, Co-Chair, Real Estate
The impact of the cannabis industry on real estate markets in states with legalized recreational use has been extraordinary, including rental rate premiums of up to four times traditional rates and sale price premiums of up to 20 to 40 percent. If Gov.-elect Phil Murphy’s stated intention to legalize recreational marijuana is successful, the expectation is that New Jersey will experience similar impacts. Legalization will bring into play issues impacting the use, growing, selling and dispensing of marijuana. As marijuana remains illegal under federal law, leaseholder issues will include properly addressing lease provisions that are otherwise “boilerplate,” including compliance with laws, permitted use, maintenance, common area responsibility, default, termination, abandonment and indemnity. It will be important to keep abreast of federal guidance from the Justice and Treasury departments, Internal Revenue Code provisions affecting income reporting and congressional appropriations affecting enforcement — all of which combine to foster the industry presently.
99 S Wood Ave.
Iselin, NJ 08830
Mitchell H. Frumkin, President
Kipcon Inc. is a full-service engineering firm that has been in business for more than 30 years. We are always looking to the future both for strategic planning purposes as well as ways to provide our clients with cutting-edge technology. While we provide a wide range of engineering design services, our primary market segment relates to the remediation, repair and upgrade of existing buildings of all types. At Kipcon, we have developed custom apps that allow us to perform our work with greater quality while at the same time more efficiently. The use of drone technology in our industry cannot be overlooked. Just a few years ago who would have thought we would truly have “eyes in the sky?”
My forecast for the future is that new technology will continue to influence what we do, and that those who embrace it will succeed!
1215 Livingston Ave., Suite 200
North Brunswick, NJ 08902
David Greek, Development and Acquisitions
Industrial real estate in New Jersey and eastern Pennsylvania has reached new heights over the past several years and is poised to continue its climb in 2018. From the leasing perspective, strong fundamentals, such as increasing tenant demand in e-commerce and manufacturing and an undersupply of new Class A space, will continue to push rents higher in most New Jersey markets. For asset sales, New Jersey industrial real estate remains a darling amongst institutional and private investors who like its proximity to the nation’s second largest port, its demographics for labor and consumers and its land scarcity. Though the length of this bull market should inspire some skepticism as to how much longer it will last, all of the rudiments of a thriving sector have stayed strong and even improved, indicating it will take something unexpected, and likely external, to cause a pullback anytime soon.
33 Cotters Lane
East Brunswick, NJ 08816
Robert C. Kossar, International Director, Northeast Industrial Market
The proliferation of e-commerce is creating a new wave of demand for last mile and urban logistics facilities. In order for retailers to penetrate the population with the level of scale they require, many of them will begin to turn their attention to modern multistory development in land constrained markets. After the New York City boroughs, the Meadowlands and the areas surrounding the Port are the most likely candidates to see this type of development over the next five years. Sustained double-digit rental rate growth will help enable this type of development and could accelerate developer’s appetite to build these facilities on a speculative basis.
One Meadowlands Plaza, 8th Floor
East Rutherford, NJ 07073
Mark Longo, Director
ELEC begins 2018 with a sense of optimism based on the upswing in the economy, the arrival of the new administration in Trenton and our two prior years of solid achievement. As the labor-management organization for IUOE Local 825, we focus on building economic opportunity for union members and the contractors who employ them. In 2016, we led a campaign to help save the bankrupt Transportation Trust Fund (TTF). Our success led to our focus in 2017 on the need to update New Jersey’s crumbling water, sewer and energy infrastructure.
In 2018, we will face both challenge and opportunity. In addition to $16 billion already approved for transportation infrastructure, we will advocate to rebuild vital water, sewer and energy projects. We believe the improving economy will expand the state’s revenue base and that our efforts to raise awareness of these challenges will lead to additional investment and a positive outcome for New Jersey residents.
65 Springfield Ave.
Springfield, NJ 07081
W. Nevins McCann, Co-Chair, Real Estate And Land Use
With the stock market at record highs, unemployment at record lows, $15 minimum wage on the way and major corporate tax cuts on the horizon, most people think there is nowhere to go but up. I hope they are right, but those factors coupled with domestic and world political unrest have given some reason to pause. One thing New Jersey has going for it is Gov.-elect Phil Murphy is in touch with national and international issues and has a strong business sense that the state needs. Short of any major world issues, we expect rents and values in multifamily to level off, with office and industrial prices rising. Retail, on the other hand, is facing an uphill battle. Amazon has created a new reality for retail landlords and business, although there are opportunities for those looking to repurpose retail space. Market forecasting and strategic planning have never been more important.
56 Livingston Ave.
Roseland, NJ 07068
Bryan Murray, Director of Business Development
In the New Jersey market, I think growth will continue, although it will be more selective in what lenders will fund and the risk developers will take. The mixed-use and multifamily residential sector should continue to grow but at a slower more controlled pace, the industrial distribution sector will continue to grow with smaller buildings closer to strong final destination markets. I can see an uptick in repurposed retail centers and malls with a focus on entertainment and food, as well as large corporate or office campus-type facilities expanding their offerings to tenants with restaurants, banks, cleaners and other daily service-type businesses. The trend of eat, work, live, play stays very relevant as convenience, location and ease of access are paramount to this new and growing consumer base.
601 Hamburg Tpke, Suite 300
Wayne, NJ 07470
David Simson, Vice Chairman/Chief Operating Officer, New Jersey
During 2017, the office market throughout New Jersey remained stable despite a few major corporations departing the Garden State. They include Eli Lilly, Hertz’s U.S. headquarters, Mercedes-Benz USA and Hoffmann-LaRoche. Many other firms have incorporated a new collaborative approach to their office space, downsized the footprint within their respective buildings and allocated less square footage per employee with a new visionary approach. Despite the aforementioned, we are very fortunate that vacancy rates continue to be similar as in the past few years due to a limited amount of new inventory being brought to the market, as well as some existing buildings being repurposed for alternative use.
Additional good news to the market includes that, through November 2017, the unemployment rate within New Jersey is at 4.9 percent. This continues to be a steady decline during the past five years from the higher unemployment rate of 9.5 percent in calendar year 2011.
Several industries continue to organically grow and absorb available inventory, including but not limited to a few pharmaceutical companies and tech organizations. And during the past two years, the medical industry has absorbed substantial blocks of space.
We do not expect 2018 to be a banner year for leasing available office properties. However, most experts have cautious optimism that with the implementation of potential new tax incentives and a revised New Jersey government, the Garden State may be the beneficiary of growth and success in the near future.
201 Route 17N
Rutherford, NJ 07070
Kevin Welsh, Executive Managing Director
As we move into 2018, there are no clear signs that we are nearing the end of this cycle and, as a matter of fact, general market sentiment reflects a measured optimism for the year ahead. This period has been driven by slow and steady growth and a “new normal” of generationally low interest rates. The potential exists for significant upward movement in interest rates with the passing of tax reform legislation and strong economic growth, which could impede the continuance of this cycle over the next 12 to 24 months.
The unusual length of the current real estate cycle has investors looking for ways to enhance yield without substantially increasing their risk. Well-located value-add investments in office, multifamily and industrial will continue to attract the deepest pool of capital. In New Jersey, this includes high-quality value-add office in transit-oriented locations, Class B industrial and build-to-core industrial development, along with infill garden apartments.
201 Route 17N
Rutherford, NJ 07070
Editor’s note: This is a sponsored feature from Real Estate NJ’s January 2018 issue. For more information about our advertising opportunities, please click here or call 973-325-1300.