Eric Demmers, Ports
It has been quite evident in recent years that people’s comfort level with making online purchases of products and services via one of many currently available digital channels has been steadily increasing. This has led to historical absorption rates of industrial space, globally. Being one of the last market verticals to adapt and leverage e-commerce, we believe packaged online grocery sales are well positioned for rapid growth. Experts expect in the coming five to seven years nearly 75% of all US consumers will purchase packaged food and beverages online. Thus, the demand for cold storage will remain high and we will continue to experience inventory shortages. Of course, users will continue to refine their processes and technologies to assist along the way but that alone will not ensure that inventory can keep up with demand. We expect food production regions such as FL and TX along with seaport markets in NY/NJ and CA to continue to be the early adopters of packaged online grocery sales which will necessitate enhanced levels of cold storage spec development in these markets.
Nick DePaolera, Redevelopment
As we enter 2020, I anticipate the New Jersey commercial real estate market to be positive for redevelopment and investment sales. Specifically, I expect the demand for industrial and multifamily asset classes to rise modestly and as a result increase property values. However, this will be largely dependent on the future of interest rates, the performance of the broader economy, and the presidential election. Despite these uncertainties, it is in my opinion that due to the stock of functionality obsolete commercial properties, low interest rates, highly favorable demographics, and the nation’s highest population density, New Jersey is well positioned for another active year of redevelopment and will continue to be a target for local and national investors and developers.
Bill Hanson, Economic Development
As we begin a new year, the market will continue to remain relatively strong. There is some level of uncertainty however due to the political climate with the upcoming presidential election as well as unrest in the Middle East. With supply constraints in a still hot industrial market, developers will build, and build big in the coming months to capitalize on unmet demand. Industrial will continue to be a major focus throughout the year ahead and I anticipate the market to remain very active for the foreseeable future. Although residential development has cooled off a bit, there is still a major appetite for transit-oriented multi-family developments in favorable downtowns.
Although a major topic last year, opportunity zones will be gaining more traction in 2020 as the final regulations were released at the end of December. As a result, we will begin to see a lot of movement on these projects as the regulations provide much needed insight on many topics that were previously up for debate.
Jonathan Kristofich on Capital Markets
Barring any major geopolitical event(s) abroad, I anticipate the capital markets will continue to be stable through the 2020 presidential election season and most likely beyond. As an alternative investment, commercial real estate continues to attract significant sums of equity capital and debt funding from a variety of sources. We can expect the low interest rate environment to continue as well, especially for the well-heeled sponsorships and mortgages secured by investment grade credit tenant transactions. Borrowers that possess a credit rated tenancy with long lease duration are able to lock in very low interest rates, typically via interest rate swaps. However, borrowers will probably experience a lending environment that may be a little less flexible in 2020. After a flurry of local bank mergers in the second half of 2019, the lending environment in northern New Jersey had several smaller banks scooped up by rapidly expanding lending institutions. Fewer lenders in the market typically leads to less competition, which could make obtaining commercial mortgages a bit more challenging for borrowers.
Patrick Lennon on Industrial
Due to the limited supply of industrial space, particularly among functionally modern buildings, we can expect rents to continue to reach record highs as industrial users vie for the handful of well-located spaces available. As demand still significantly outpaces supply and developable land continues to dwindle in the Meadowlands as well as in favorable secondary and even tertiary industrial submarkets, we can expect to see most of the spec developments that are underway to be preleased prior to construction completion. As a result of unprecedented demand, even with a large wave of inventory coming online in 2020 and 2021, these assets will be absorbed quickly.
Further driving demand, Port Newark Elizabeth’s unmatched access to one of the largest and most concentrated consumer markets in the world will continue to be a leading force in the industrial market. With more than $4 billion in modernization initiatives over the past two decades, the Port’s unprecedented cargo growth will lead to an even steeper increase in demand for warehousing space in the surrounding markets to accept the incoming products from all over the world.
Josh Levering on Office Space
As we look to 2020, New Jersey’s tight labor pool and overall high cost of living will continue to play large roles in our overall office market. As employers will continue to search for quality spaces that will attract workers and investors will also search for buildings that are well-positioned for long-term high occupancy. This emphasis on employee happiness from both the leasing and investment perspectives will only widen the gap between high-quality, amenity-rich facilities and functionally obsolete office space. We still have a tremendous surplus of older suburban office buildings, so I fully expect to see many of these raised or significantly upgraded over the next several years. The specific aspects of location and adaptability have older, Class B, C, and D office properties in the cross-hairs of creative investors and represent tremendous underpriced opportunities for those with the vision and expertise to make them a reality.
Darren Lizzack on Medical Office
As health systems formulate their long-term master plans, most, if not all, will look to consolidate their footprints. As they search for central locations that can accommodate the larger space requirements needed to house all of their practice groups under one roof, hospitals will continue to move away from the siloed and antiquated medical office spaces they’ve inherited via small practice group acquisitions.
With the high number of functionally obsolete spaces on the market, inventory for good medical office space fitting the needs of today’s healthcare tenants is limited, positioning sellers well to capitalize on the shortage of inventory and low interest rate environment if they choose to sell.
On the tenant side, smaller practice groups that continue to operate independently will have the upper hand when negotiating, as demand for smaller office suites has been on the decline since 2008. Paired together, I see strong demand across the asset class and a limited supply leading to not just ground-up development but the ongoing adaptive reuse of well-located buildings to transform them into medical office spaces.
Steve Pastor on Logistics/ Freight Rail
Possibly the most important commercial real estate story of the last decade, the rise of e-commerce has had substantial impacts on increasingly complex global logistics networks. This trend has placed tremendous stress on the nation’s Class-A industrial inventory. Take one look at a map of the international ports found in California, Seattle, or New York and it is obvious–there just isn’t enough land in the places it needs to be to ensure those ports can fill the needs of growing logistics networks.
As we look towards the next decade, it is easy to see why ports like Savannah, Charleston, New Orleans, Mobile, and Norfolk are primed for incredible growth and will soon be crucial pieces of our nation’s national and international logistics networks. As the viability of these markets continues to be reinforced, expect to see a flood of companies looking to establish footprints in these secondary and tertiary markets, either by expansion or relocation.
Along with this, the efficiencies presented by our nation’s robust freight rail networks will become irresistible for companies searching for savings wherever they can find it. Over the next few years, expect to see an accelerated pace in the development of freight rail-focused industrial parks as developers look for innovative ways to streamline their networks to meet the logistics challenges of the future. The investment community has also recognized the superior yields that are attainable in secondary and tertiary markets and will continue to direct capital to develop industrial infrastructure in these areas.
