By Michael G. McGuinness, Chief Executive Officer, NAIOP New Jersey
The headline for commercial real estate in New Jersey continues to be our hot industrial sector, where land costs and availability are keeping the supply a bit constrained.
The year 2016 looks to be much the same as 2015 in terms of new development and absorption, with rents on the rise. A significant amount of new product will be coming online that will subsequently be leased up in the following year.
The expansion of e-commerce (and consumer demand for next-day, and even same-day delivery) means the rapid movement of goods is more critical than ever. The Council on Port Performance, administered by the Port Authority of New York & New Jersey, is meeting the challenge with efficiency measures that use technology and strategically placed products and services.
Additionally, the Bayonne Bridge “Raise the Roadway” project is expected to achieve navigational clearance in late 2017 to accommodate the large Post-Panamax vessels that will have access to all of the terminals serving the Port of New York & New Jersey, once the Panama Canal expansion is complete.
Technology and the investment of capital are driving demand for smaller, more efficient building footprints, including multi-level warehouses. Many of these smaller industrial facilities are rising in in-fill areas that are closer to customers. Omni-channel retailing (a seamless shopping experience for consumers integrating web stores, mobile apps and brick-and-mortar stores) is also fueling the demand for space. Traditional stores need space for “just in time” inventory to satisfy customers who want to research and complete purchases online, then pick them up at the store an hour later, and retailers that began on the web are opening physical stores in response to customer demand.
The office market saw near-record transaction volume in 2015, especially for class A space, which made up 71 percent of the leasing activity. Overall, office rents are starting to increase, with Central New Jersey ahead of the curve, particularly the Princeton and Metro Park submarkets. Vacancy rates for class A office are particularly low in markets such as Chatham, Millburn and Short Hills, at just 6.6 percent. Rates in markets that are trending right behind are Princeton at 9.4 percent, the Hudson Waterfront at 14.2 percent, and Metro Park at 16.6 percent. Taking into account class B buildings, the statewide average is still approximately 20 percent.
Although class B buildings (about 45 percent of New Jersey’s office inventory), which are situated near mass transit and amenities and are easily available to the workforce, will continue to be prime office locations, those with high vacancy rates (termed “zombie” buildings), are weighing down rents.
The rise of the sharing economy and co-working centers could breathe new life into some of these zombie office buildings (stranded assets), representing golden opportunities for towns with forward-thinking leadership. Future job growth will look nothing like it has in the past. Carefully thought-out changes to zoning, planning and marketing will be essential to attract the employers and younger workforce needed to sustain our economy.
Multifamily housing is robust especially on the Gold Coast. Jersey City is anticipating the development of 3,000 to 4,000 units a year for the next several years. Other beneficiaries are communities near mass transit. Communities with easy access to a large consumer base will be targeted for drop-off and pick-up locations for e-commerce customers.
Since New Jersey is a home rule state, local governments must become much more engaged in business retention and expansion. The commercial real estate industry is on the front lines of economic development and has its pulse on the market trends and needs of the end users that inhabit our buildings, homes and communities. The “must-haves” are access, affordability, efficiency, convenience, accountability, timely decisions and a welcoming environment. Toward this end, public-private partnerships are an attractive, efficient and cost-effective way for cash-strapped government agencies to build the necessary infrastructure that supports economic development.
The investment climate is strong, with substantial capital in the market, with a significant amount of it being foreign. As the Chinese economy has weakened, commercial real estate properties in the United States have been the darling of Asian investors.
Location still matters, so New Jersey’s future should be bright. Our proximity to dense populations of consumers, the cultural amenities offered by nearby New York City and Philadelphia, the expansive and well-connected transportation and infrastructure systems and the recreational opportunities offered by our coastline and ski resorts are huge benefits. Unfortunately, none of this will matter unless our policy makers are able to secure long-term funding for our aging infrastructure and lower the costs of living and operating a business here. Our No. 1 priority for 2016 must be to invest in our transportation system. New Jersey has “good bones” … an enviable transportation network of rail, roads, interstates, bridges, airports, light rail and ferries. This transportation network is the lifeblood of our economy, our security and our overall health, and we cannot afford to neglect it.