ROI-NJ: ROI asks the experts: Real estate predictions for 2018
We asked some of the biggest names in a cross-section of the real estate industry for their thoughts on the year ahead. In other words, we’re looking at the industry from every angle we could think of.
Here’s what our experts said (listed alphabetically):
Technology is rapidly changing every aspect of real estate and, in 2018, capital recruitment will be no different. We feel 2018 will be the year that real estate crowdfunding technology finally takes its rightful place in the mainstream of capital recruitment strategies. Proposed changes to the accredited investor criteria and the continued refinement of crowdfunding platforms will enable firms to recruit capital from a wider pool of investors that would have been impossible to reach previously. With boosted capital flows, developers will gain enhanced flexibility and efficiency allowing us to execute more ambitious projects throughout the upcoming year.
Fields Development Group and Fields Construction Co.
In Jersey City, we’ll continue to see demand grow for larger apartments. Much of the product that’s been delivered to the market over the past decade has featured space-efficient units that were designed to cater to the city’s influx of millennials, who valued experience over personal space. Now, with those same millennials coming of age and having children, there’s a scarcity of sizable residences for renters who wish to remain in Jersey City. We’re currently experiencing it firsthand at our Lenox community in Paulus Hook, which features some of the largest apartments in the market. In 2018, we’ll bring to market another building that will help meet the demand.
Senior managing director
In 2018, we expect to see continued interest from the investment community for core-plus multifamily, grocery anchored retail and in-fill industrial in the suburban New Jersey market. We are forecasting new demand for well-located suburban office as a basis play to retenant the property, or as a redevelopment into a new use such as industrial or multifamily. We should also see demand pick back up for core multifamily as the buyers look for more pricing power in the rents. Finally, we will need to keep an eye on interest rates and the heated equities market as the year progresses.
There are many reasons that Brownfields and ecosystem developments will continue, as well as stimulate new commercial and residential projects. While Washington proposed budget cuts to the (Environmental Protection Agency), the Superfund program has remained a bipartisan interest. Gov.-elect Phil Murphy and his selection for (New Jersey Department of Environmental Protection) commissioner, Catherine McCabe, are serious about site cleanup and will continue to make this a priority. The urban waterfronts and transit areas remain of interest to developers, and contaminated properties that have sat idle for years are now in demand. New remediation technologies, risk transfer options and the availability of solid environmental insurance will reduce lenders’ and developers’ liability concerns, stimulating development of tainted sites.
Mack-Cali Realty Corp.
In 2018, our focus will be on Harborside, our flagship office property and headquarters, which is on its way to becoming the core of a 24/7 cultural district on the Jersey City waterfront. By this time next year, the aesthetic transformation of the Harborside Atrium will be complete, with an exciting event roster and slate of new restaurant and cafe openings planned. We’re building on our 2017 successes, including the opening of Lutze Biergarten and new transit-oriented additions: electric charging stations, a Citi Bike station and the launch of NY Waterway ferry service. Today’s workforce wants the urban experience. That’s why we’re implementing overhauls at our premier, transit-oriented suburban office properties to mimic it by adding a variety of dining options, fitness facilities and events.
Chief operating officer
As companies and their CEOs continue their search for commercial space that can attract and retain a diverse, educated workforce, Newark’s incredible public transit network and growing list of cultural attractions make it an increasingly appealing destination. Talk of the city’s long-awaited economic rebound has been circulating for decades, but there is no denying that it is now in the midst of a full-fledged renaissance. Edison Properties is thrilled to contribute to the revitalization through our Ironside Newark project, and we expect even more companies will announce their decision to call the city home in the year to come.
Chiesa, Shahinian & Giantomasi
It’s clear that much of brick-and-mortar retail is struggling, with e-commerce gaining steam and many national retailers falling by the wayside. However, certain segments of the market will continue to thrive. For example, retail at the base of mixed-use properties — generally, smaller spaces with restaurants and other retailers that support the entire development — will show much more resilience than the sector overall. Even more significantly, once American Dream opens in East Rutherford in 2019, we’ll see 21st century retail in action: a destination property where people go for events, entertainment, dining — and also shopping. In 2018 and beyond, we expect developers to internalize these lessons and pivot to dynamic retail properties that attract consumers by offering them something beyond retail.
Canoe Brook Associates
Founder and managing member
Notwithstanding the passage of the Republican tax bill, the impact of which cannot possibly be overstated, it’s too early for the apartment-building community to look ahead to a resurgence of demand for our product. There are two issues much closer to home that could change the landscape just as much as the lowering of the mortgage interest deduction and (state and local tax deduction): tying (payment in lieu of tax) agreements to prevailing wage and the potential elimination of light-frame wood construction. Both of these measures, to be considered in the next legislative session, have the potential to halt New Jersey’s construction industry and economic development, as well as make nearly impossible the construction of affordable and middle-income housing.
Energy Technology Savings Inc.
Over the past few years, the real estate industry has witnessed increased technology-assisted functionality from diligence to operations. Most often, we think of this as financial analytics measuring or directing a particular decision. One of the most fascinating aspects of (Internet of Things) devices, Deep Learning software, digital assistants and (artificial intelligence)-directed property management, however, is being demonstrated through behavior management — guiding machines and real estate operations teams. And these software-driven behaviors are enhancing quality of tenant comfort, increased rents and reduced expenditures (e.g., energy and payroll). In 2018, as the industry suffers lower rents (for so many reasons), we will see more owners rethinking intelligent building technologies and embrace utilization of these technologies even more quickly to bolster (net operating income) and (net asset value).
New Jersey senior managing director
Building on past momentum, we expect 2018 to be another growth year for Newark, as the city further capitalizes on both owner and occupier commitments. Over $1.5 billion-plus has been invested in Newark CRE assets since January 2014 (including sales, refinancing and transfers), with investment activity growing year over year as capital flows in from institutional, foreign and New York City-based investors. Another positive sign is the success of major multifamily developments, which have strengthened the labor market and solidified Newark as a live-work-play destination. The Newark office market has gained strength and attracted major employers in recent years — a trend we expect to continue in 2018. With all these signs pointing upward, the city climbed to No. 13 on CBRE’s Tech Talent Scorecard, indicating its growing prominence in the national technology sector.
We anticipate slow and steady growth for the New Jersey office market in 2018. Incentives will play a major role, as industry leaders look to mitigate costs associated with high-profile expansions, consolidations and relocations. In suburban, transit-challenged submarkets, the continued trend toward high quality, amenity-rich, well-socialized office product is projected as forward-looking credit tenants compete to recruit and retain talent. Owners who have made proactive improvements to meet these standards will benefit significantly. In downtown, transit-oriented submarkets, already-robust interest and activity among investors should continue as businesses and workforce migrate toward easily accessible, more affordable secondary and tertiary cities, bringing investment and redevelopment opportunity along with them.
The number of development deals and major leases may decrease dramatically in 2018. New Jersey has become more competitive with its surrounding states because of the availability of various incentive programs. Due to the high costs of doing business in New Jersey, the Grow New Jersey program is one of the few levers the state can pull to encourage development of business. The new administration is already discussing a curtailment of the Grow NJ program. This will not only affect the number of companies coming into New Jersey, but also discourage companies located in New Jersey from modernizing and expanding their operations.
The sustained spread of online retailing and the necessity for distribution networks with access to the nation’s population centers is expected to drive market fundamentals to new heights in 2018. While the rise of e-commerce is no new phenomenon, increased speed of delivery and ability to penetrate large consumer bases is shifting the network model for many retailers. Demand for last-mile facilities from both retailers and the companies which service them (namely, parcel carriers) are expected to further bolster industrial demand in 2018.
Senior vice president and regional development officer
While the New Jersey Turnpike corridor has been the focus of industrial development in New Jersey for quite some time, there are very few opportunities available today for development. As a result, I expect that we will see that focus shift further toward the Interstate 287 industrial submarket in 2018. The I-287 corridor is the obvious next frontier for development in the state, and it offers companies a prime transportation-oriented location. Separately, the functionality of industrial product in New Jersey will continue to change the face of development in 2018. While the overall impact of e-commerce on the industry has been talked about for years, the impact that e-commerce has specifically on building functionality is becoming increasingly significant. It’s now critical for developers to build industrial properties that satisfy users’ current needs, while also providing the functionality that can accommodate rapid growth.
Co-chair of Real Estate and Land Use Group
Buckle up for a big year in 2018. The stock market is high, unemployment is low, a major tax cut just passed and things are looking good. This is all positive news despite domestic and world political challenges. New Jersey should be well-served by Gov.-elect Phil Murphy, as he is in touch with national and international issues, and has a strong business sense that the state needs. Short of any major world situations, 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 with the world domination of Amazon.
Steven J. Pozycki
The migration of New York City’s office market west and downtown has been ongoing for quite some time, as tenants seek out new construction that meets their operational and infrastructure needs. The interesting corollary is that the New Jersey office market is benefiting from this trend, and we should see that continuing in 2018. The dense transit network between New Jersey’s waterfront markets and Manhattan’s West Side and Financial District, with the PATH, NJ Transit, NY Waterway ferry and the bus terminal — has created a trickle-over effect, with New York tenants pursuing new or complementary locations across the Hudson River without having to forego connectivity or access to talent.
Senior vice president, market officer
E-commerce has set off a scramble for industrial real estate near urban centers, and we’ve seen this up close in New Jersey, with its proximity to so many end consumers. The trend will become even more prevalent in 2018, as more online retailers look to operate in prime locations that enable efficiency and rapid delivery. Location matters, but so do high-quality buildings. Efficient facilities cost less to operate, which saves money for customers and generates value for investors. It’s why Prologis will continue to develop new facilities to global sustainability standards and upgrade existing buildings with efficient lighting, solar roofs and low-water solutions.
Executive managing director
The industrial sector will continue to thrive in New Jersey in 2018. While we anticipate experiencing positive market fundamentals, we don’t expect to see the same robust leasing activity that the market has enjoyed over the last two years, due to the lack of available inventory. The office market is expected to have a strong first half of the year as several large transactions that stalled at the end of 2017 are anticipated to close in the first quarter of 2018. Additionally, the adaptive reuse trend which reduced New Jersey’s office inventory in 2017, will continue into 2018.
Joseph S. Taylor
Matrix Development Group
CEO and president
The momentum in New Jersey’s industrial sector will continue to be strong in 2018. The market is experiencing record low occupancy rates, increased rents and incredible demand. The e-commerce sector continues to fuel a need for high-grade logistics facilities with immediate access to the Northeast Corridor. The market momentum is also supported by the success of the Port of New York and New Jersey, which has seen a significant uptick in container volume after years of infrastructural upgrades, per a recent Transwestern report.
We feel 2018 will be another banner year. The record-setting stock market, low unemployment and new tax law will keep the winds at our backs. The limitation of the property tax credit to $10,000 will create even more renters by choice in New Jersey and further propel the multifamily rental market. The e-commerce phenomenon will continue, especially the need for last-mile delivery, and the New Jersey warehouse market will continue to be a huge beneficiary. At Woodmont, we are looking over the horizon and realize there are headwinds looming. With a new administration, there will be changes to new multifamily developments and, therefore, (we) are adapting our multifamily apartment, industrial and for-sale housing pipeline to meet the needs of New Jersey businesses and families.
Sills Cummis & Gross P.C.
Co-chair, Real Estate Law Department Chair, Redevelopment Law and Public Policy practice groups
I’m going to stick with my very prediction from last year: Chuck Schumer will become President Donald Trump’s new best friend, as the White House looks for votes across the aisle to raise the debt ceiling and fund an ambitious public infrastructure initiative. Despite their philosophical differences, these two New Yorkers share a common desire to fix the crumbling, failing infrastructure in our older cities.
In 2018, New Jersey’s acceptance and adoption of ‘next-generation’ housing and workplaces will continue to accelerate. This doesn’t just mean millennials — although they are inarguably a driving force behind the trend — but any of the growing number of people that are seeking dynamic, city-style settings in which to work and live. As illustrated at Bell Works, these pockets of urbanity can be created in suburbia. This will be especially important as we see a ‘reverse migration’ of young professionals back to the suburbs as they seek out new communities to buy a home and/or start a family.