Editor’s note: This is part of a special advertising section appearing in Real Estate NJ’s January issue.
To no one’s surprise, New Jersey’s commercial real estate sector is ready to turn the page on talk of interest rate uncertainty. That’s not to say there won’t be headwinds in 2024, but industry leaders are expecting some relief for a market that has been stymied by the high cost of capital.
What that means for leasing, investment sales and lending will play out in the months ahead. In the meantime, we’re lucky to have a distinguished list of experts, including several returning participants, share their predictions in our 2024 Market Forecast.
Vice President & Regional Director, NJ/PA Development
After a somewhat challenging 2023, Rockefeller Group expects transaction volume across the industrial sector to improve in 2024. With a higher probability that inflation has stabilized, we expect interest rates to stay the same or decrease. As a result of stabilization and the potential for lower interest rates, especially toward the second half of 2024, occupiers will once again begin to execute on their leasing strategies. In addition, investors will deploy more capital. Demand for goods delivered in a faster timeline will continue to evolve, which will help foster increased investments in technology and material handling equipment. Despite longer lease-up periods, rents will continue to stabilize with nominal rent growth. Functionality, design, location and a flight to quality as well as a greater focus on green initiatives will become more important to occupiers and institutional investors. Real estate fundamentals will prevail regardless of asset class.
92 Headquarters Plaza North Tower, 9th Floor
Morristown, NJ 07960
Mitchell S. Berkey
Chair, Real Estate Group
The 2023 themes of interest rate and market uncertainty will continue to impact deal underwriting and execution deep into 2024. But, the tide, as it always does, will turn. On the transaction front, the expected wave of loan maturities leading to foreclosures and rescue capital-based deals has yet to materialize in significant numbers. Lenders we work with are eager to get back into the market. Equity sources have serious amounts of dry powder to deploy. We are deeply involved in the development of large-scale multifamily, mixed-use, movie studio and other projects. While some will experience pain along the way, the market will transition back into active deal mode. In expectation of pent-up demand leading to major activity by the fourth quarter of 2024, CSG has elevated key team members to leadership roles in two newly branded practice areas — Redevelopment, Land Use & Zoning and Real Estate Property Taxation & Incentives — all core elements of our overall Real Estate Group.
105 Eisenhower Parkway
Roseland, NJ 07068
Robert S. Burney, Esq.
Business and Financial Services Group Chair
The combined impact of the spike in bank interest rates to their highest level since the early 2000s, credit tightening in reaction to regional bank failures and general economic uncertainty severely impacted commercial real estate and mortgage financing transactions in 2023. Several large regional banks have taken a “wait and see” approach and essentially stopped making new money loans on investor real estate in New Jersey. Those financing transactions which did close in 2023 have typically taken much longer to complete.
While the rental market for industrial and logistical properties remains strong, the volume of purchases, sales and financings remains far below 2021/2022 levels.
Although lenders and real estate borrowers seem to be adjusting to the “new normal” and the volume of real estate financings has increased in the fourth quarter of 2023, the continued uncertainty of the economy and an impending presidential election will likely cause headwinds to a strong rebound in the first half of 2024.
The good news is that New Jersey’s commercial real estate market typically weathers these conditions better than many other parts of the country.
53 Cardinal Drive
Westfield, NJ 07090
Director of Business Development
In 2024, JRM will revolutionize the multifamily sector, building alliances in diverse fields like corporate, finance, health care and retail. Our reach extends to sectors including broadcast, media and hospitality, showcasing our ability to deliver innovative, sector-specific solutions. This diversity positions us to create pioneering solutions that meet the specific needs of modern industries, transcending traditional construction to craft environments that encapsulate the unique character of each sector.
Emphasizing holistic environments suited to evolving lifestyles, JRM will take the lead in constructing mixed-use spaces tailored for today’s dynamic workforce. Our projects are more than structures — they’re sustainable environments embodying our commitment to community and environmental responsibility. We integrate advanced technology with user-centric design, ensuring each development reflects our vision of technological growth and diversity.
This year, JRM will pave the way in shaping the future of real estate, creating adaptive environments that resonate with the needs of tomorrow’s world.
390 Veterans Blvd.
Carlstadt, NJ 07072
Gregory J. DeMarco, PE
We saw an uptick in the fourth quarter of 2023 for commercial real estate projects heading into 2024. I believe the market is already moving on projected interest rate decreases and projects are freeing up that were previously on hold. Health care is strong and continues to be a robust market. Pharmaceutical R&D is right alongside health care and there is an uptick in medical office buildings, or MOBs. Also, major online suppliers continue with warehouse development.
Adaptive reuse continues. Interesting in the commercial sector is the renovation of office space into smaller “white box” areas. Many of the landlords we’re working with are going in with the approach of “move-in condition.”
Different from 2023 is a big uptick in data center design throughout the region. Core infrastructure and power redundancy are major factors. I attribute this in part to e-commerce growth. Financial institutions are also upgrading and expanding their data centers.
Employee recruitment remains a challenge in the STEM sectors. Overall, I see 2024 as a strong year.
20 South Middlesex Ave., Suite B
Monroe Township, NJ 08831
Partner, Originations, Due Diligence and Business Development
The real estate industry in the tristate area has been tricky to navigate the past 12 to 18 months — rising rates, inflation, supply chain, labor shortages … the list goes on and on. “Survive to ’25” has been the poster child slogan across the board. Luckily, we may see a little reprieve in 2024, which a few weeks ago seemed impossible.
Fed Chair Jerome Powell has finally announced a few rate reductions are likely on the horizon, and immediately it feels like we can finally come up for air. As a lender, it has been tough, but on the bright side, we are finally weeding out the weaker deals in the marketplace with undercapitalized partnerships. Unfortunately, the cost overruns and high rates are making it near impossible to get out of the construction loans written the past five years. Good deals are out there, but it is like finding a needle in a haystack. Capitalized partners and borrowers will be the key to success over the next 12 months.
570 Sylvan Ave.
Englewood Cliffs, NJ 07632
William C. Hanson, SIOR
During the past year, we have seen industrial pricing plateau across northern New Jersey after the pandemic-driven frenzy of 2020 to 2022.
As we enter 2024, continued increased availability of sublease space, a pullback from large single-tenant users and the delivery of new industrial spaces that began construction at the height of the market will drive up availability and place downward pressure on pricing. Rather than a cause for concern, this reflects a return to more normal market conditions and we are confident it will create a healthier market in the long term.
Looking even further ahead, the market will absorb the new construction, albeit at a much slower pace than before. As the new construction pipeline lags due to a challenging financing environment and public backlash to new development, the market will promise opportunities for patient and creative investors and owners.
195 North St., Suite 100
Teterboro, NJ 07608
Commercial real estate owners are focused on positioning assets for maximum performance, leveraging leasing velocity to take advantage of expansion potential and reposition existing GLA. This translates to a busy time for integrated third-party services providers that offer a full suite of services including leasing, management and construction management. For example, this year Levin Management spearheaded the ground-up construction of two industrial buildings to expand Rutgers Industrial Center, an established campus in Piscataway. Both buildings were leased prior to their completion. On the retail front, we recently launched a major redevelopment at Blue Star Shopping Center in Watchung, which was catalyzed by an in-center relocation and new, 72,000-square-foot lease with ShopRite. Throughout the state, our clients are moving forward with pad site developments and tenant fit-outs at open-air shopping centers, which continue to outperform other retail asset types. We expect this momentum to continue in 2024.
975 Route 22 West
North Plainfield, NJ 07060
We have been through many market cycles and the economic changes that began in 2022 continued throughout 2023 as interest rates rose and then began to fall and inflationary pressures increased and then began to subside. These changes impacted the market with the number of sales and sales volume decreasing to levels well below the 2021 and 2022 peaks. However, we continue to do business as we have since 1906. We are out knocking on doors, building relationships and providing our clients with market information, guidance and service when they need it.
The investment real estate market is resilient. As economic uncertainty continues, investors continue to seek the safe refuge of investment real estate. The multifamily market continues to be the strongest commercial real estate market and the multifamily rental market remains relatively strong given the ever-increasing demands for housing. Other types of investment and commercial properties in desirable locations also remain in demand.
100 Woodbridge Center Drive
Woodbridge, NJ 07095
Stuart A. Johnson, AIA
The New Jersey and regional multifamily, mixed-use markets are still strong in 2024 due to local and regional drivers, continued income growth and a robust job market. New Jersey continues to attract market innovators such as Nokia Bell Labs to its cities and downtowns, creating job opportunities and new residents.
Systemic barriers to homeownership, particularly in a high interest rate environment, will create more long-term renters. We also continue to see a growing population of renters by choice to better meet today’s lifestyle that favors greater convenience and flexibility.
Many of our clients build for long-term growth and are currently active through land acquisition, rezoning or repurposing of distressed office and commercial assets, entitlements and permitting. Affordable housing will continue to be a driver, however the NJEDA’s Aspire Program and new pending legislation may offer incentives and better streamline the approvals process.
80 Lambert Lane, Suite 105
Lambertville, NJ 08530 |
2 Gateway Center, Suite 1700
Newark, NJ 07102
As multifamily investors and property managers, we anticipate 2024 to be a landscape shaped by evolving economic factors and shifting tenant demands. In multifamily, young professionals and smaller households are increasingly being drawn to modern, amenity-rich rentals in urban areas, emphasizing the importance of lifestyle features and work-from-home capabilities.
Tenant preferences are evolving with a growing emphasis on flexible living spaces, smart home technology and environmentally conscious designs. These trends are shaping how properties are developed, marketed and managed, underscoring the need for multifamily properties to adapt to these changing demands to remain competitive.
This may be a little premature, but we anticipate the impact of artificial intelligence (AI) in the multifamily sector is substantial in 2024. AI can impact property management through predictive maintenance, enhance tenant engagement with AI-powered services and assist in making more data-driven investment decisions. Properties that integrate AI to improve operational efficiency, conduct sophisticated market analysis and provide a personalized tenant experience will likely be at the forefront of the multifamily real estate market, attracting forward-thinking investors and tech-savvy tenants.
112 Jabez St., Suite 100
Newark, NJ 07105
Sean R. McGowan
Partner and Co-Chair, Real Estate Department
With no immediate signs of high interest rates substantially subsiding, we anticipate that 2024 will likely see a continuation of the transition the commercial real estate sector began experiencing in earnest during 2023. Since the cost of credit continues to impede future profitability, transactional volume has decreased, including in sectors that saw intense price increases during and after the COVID-19 pandemic. Accordingly, price stabilization has become commonplace, not just in transaction prices but also in asking prices, and it is quite possible that we will see noticeable price reductions from the lofty highs of recent years. Likewise, vacancy rates in the red-hot industrial sector have started to increase, especially in tertiary markets and in certain subclasses, placing further pressure on pricing. While many believe that the second or third quarters of 2024 will bring interest rate reductions from their recent high levels, the question will be whether any decreases will be substantial enough to offer those who need to refinance their commercial loans the ability to do so without substantial diminishment to their property’s cash flow. If the answer to this is “no,” those with available cash will likely see some excellent buying opportunities over the coming 12 months, as the market meets its new reality.
75 Livingston Ave.
Roseland, NJ 07068
Director of Business Development
Despite economic challenges, 2024 shows promising growth opportunities across various asset classes. Interest rates are expected to decrease, creating a favorable environment for developers. The multifamily sector remains strong, especially in suburban areas, enhancing product availability. Smaller retail spaces are on the rise, with new retail centers emerging and older ones revitalizing, particularly in densely populated areas.
Although the industrial market might soften slightly, with reduced inventory needs post-pandemic, there’s an increasing demand for cold storage facilities. Office space, despite high vacancy rates, is likely to see minimal change, but repurposing old offices into multifamily or mixed-use buildings is a key trend.
With a resilient subcontractor and supply market, those ready for construction will have a strategic advantage. Overall, 2024 is expected to be stable, marking a step toward greater economic normalcy.
601 Hamburg Turnpike
Wayne, NJ 07470
Alexander J. Narcise, CPA
Partner, Real Estate and Construction
The prognostication of the real estate market can be left up to the brokers and owners in our wonderful New Jersey real estate market. Instead, here is an update on the accounting firm landscape. The customer demand related to our services has significantly changed. As accountants, we’re at the center of everything a customer does, and we credit our success to them. With that said, Wiss has poured back capital to invest and expand our service mix. Clients are demanding services such as data analytics, financial consulting, family office services (including wealth management and insurance), advisory, recruiting, IT implementation, automation services, trusts and estate, outsourcing and a deep tax experience in the real estate industry. The goal for firms is to become a one-stop shop for all our customers’ needs. If you are not hearing these things from your firm, you should be asking why.
100 Campus Drive
Florham Park, NJ 07932
Senior Vice President |
Senior Vice President
In the latter part of 2023, there was a clear uptick in investor interest toward multifamily investments and this trend is expected to continue into 2024. We expect transaction volume to gradually improve in early 2024 and get a boost toward the end as rates decline. Rental growth for apartments is projected to stabilize in 2024, with additional growth expected shortly after as estimated deliveries decrease significantly. — Ozturk
Our role as advisors has never been more prominent, as we partner with our clients to improve operations, manage debt and monitor market volatility to create the optimal marketing strategy. We anticipate the Fed’s continued focus on taming inflation, coupled with the delay in economic data and the historical correlation between GDP and the 10-year Treasury, to push interest rates lower throughout 2024. This appears to be a bottom for valuations; investors seeking major distress may miss out on the opportunity to purchase quality assets in strong locations at today’s elevated cap rates. — Gatto
50 Pehle Ave., Suite 600
Saddle Brook, NJ 07663
Despite the stock market hitting daily “all time” highs, fear and uncertainty continue to dominate the market for real estate investment. There are several negative economic concerns that will negatively impact the real estate industry in 2024. These concerns have resulted in banks and equity sources delaying most capital commitments, causing further illiquidity in the market.
Woodmont’s long-term investment approach will allow us to continue to invest and build for long-term growth, as a holistic view of investment strategy should transcend any short-term dysfunctions in the markets including a likely recession. Companies with strong track records and balance sheets will continue to attract capital sources. A seven-plus-year view of value creation provides a very attractive case for real estate investment today.
With long-term value creation at the heart of our operations, Woodmont will remain committed to the acquisition and development of properties in our core asset classes of multifamily, industrial, hospitality and senior housing, in New Jersey, Pennsylvania and South Florida.