New Jersey Business magazine recently posed five questions to Michael G. McGuinness, CEO of NAIOP-NJ, regarding the commercial real estate outlook for the state in the New Year. In his answers, McGuinness, who is a long-time CRE industry professional and regular contributor to this magazine, compares 2019 to what is expected in 2020, specifically in the office and industrial sectors.
NJB: How do you see the office and industrial markets performing next year in the state and how will it be different from 2019?
McGuinness: Office occupancy levels increased for six straight quarters and that will likely continue in 2020. Redevelopment is one of the top drivers of growth in the state, as landlords continue to revamp properties and private investors pump capital into aging assets. The industrial (warehouse sector) shows no signs of slowing down being fueled by ever-increasing e-commerce retail sales. However, industrial will be challenged by blue collar labor shortages, a diminished supply of land and rising construction costs.
NJB: In looking back at 2019, were there any surprises for you in any of the two sectors?
McGuinness: I was surprised that our industrial sector was not hurt by the trade tariffs; it turns out that only a small percentage of our port’s cargo comes from China. Frankly, I’m also surprised we haven’t seen a funding solution for Gateway, since the new tunnel is the single most critical infrastructure project in the nation.
NJB: What do you see lease rates doing next year in both sectors?
McGuinness: Office lease rates should continue a slow, steady growth. Historically high asking rents will continue to be the norm for industrial, which is only constrained by supply, even with about 18 million square feet in the pipeline through mid-2021.
NJB: What do you think will be positively or negatively impacting these sectors next year from a strictly business standpoint and from a public policy standpoint; both US and federal?
McGuinness: Our business climate will likely get much worse unless the Governor and Legislature collaborate and settle on the next generation business incentive programs. I am also alarmed with pending legislation that would effectively ban independent contractors, which comprise 80% of the truckers servicing our port, that may end up scaring cargo away to other East Coast ports. This in turn would cripple our economy by eliminating jobs and increasing the costs and delivery times for consumer goods. On the positive side, I am optimistic about NJ Transit’s renewed commitment to securing new revenues to enhance its infrastructure and improve the commute for its riders.
NJB: What is still great about locating a business in NJ when thinking about its location and CRE assets?
McGuinness: New Jersey is blessed with diversity in natural environments, culture, entertainment, neighborhoods and some of the best food in the world. Our educated workforce, transportation networks, ports and access to a large and affluent consumer market will continue to attract employers and investors, and NAIOP members are here to work with them to transform and inspire our communities.
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