EAST RUTHERFORD, NJ-Though some sectors remain challenging, the economic recovery continues to progress in the United States and New Jersey, said speakers at NAIOP NJ’s Annual Meeting and Real Estate Forecast, held on Jan. 24 at the Sheraton Meadowlands here.
Discussions of the economy, and both local and commercial real estate saw a still evolving market. “The recovery now seems to be on track, but you have to keep it in perspective,” said James W. Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy of Rutgers University. “More people believe in flying saucers than believe that the recovery is 31 months old.”
As of December 2011, there are still 5.7 million fewer jobs in the United States than in December 2007. But the economic situation could have been much worse. The economy stabilized in 2010, and despite major upheavals including the Japanese Tsunami, Greek debt crisis and unusual weather patterns, saw a gain of 9.7 million jobs in 2011. And last year, New Jersey started to track the nation more than it has in a decade.
“The recovery will continue in New Jersey and it will continue to track the United States,” Hughes said. “Those states that have been competitive to New Jersey have lost their allure.”
And demand is coming back, said a panel of developers.“We’ve seen more demand in the last six months to a year,” said Edward Russo, president and COO of Russo Development, of Carlstadt, NJ. Cap rates have been below 6%, “which to us is incredible.
Though there is plenty of institutional capital available, it’s going to Class A properties, he said. Cap rates will continue to be compressed on B properties.
But low cap rates aren’t a problem for some investors, said John Orrico, president of National Realty & Development Corp., Purchase, NY. “Canadian funds are investing in retail in the United States, and they’re happy with a 4.5% rate,” Orrico said. “They’re anticipating that there will be a growth in rents.”
Largely because of tremendous barriers to entry, New Jersey has approximately 6% vacancy in retail, compared with 12% nationwide. Retail is not without its problems—it must grapple with how to balance customer satisfaction, e-commerce and physical stores. Best Buy essentially has become a showroom for online purchases.
“They have to readjust and downsize. Staples, too,” Orrico says. “Barnes & Noble is on our watch list.”
Yet Amazon is building 25 distribution centers around the United States to get its items to shoppers faster, said Brian Townsend, SVP-investments for CenterPoint Properties, Oak Brook, IL.
“What is most active out there? E-commerce,” Townsend said. “And it will continue to be.”
Primarily an industrial, office and retail developer, Russo Development has diversified into different property types, pursuing multifamily sites in the last two to three years. And Townsend notes that speculative development of industrial property is taking place in New Jersey and California.
“The demand for industrial is there in some of these markets,” Townsend says. “But I don’t thing we will see it in second- or third-tier markets for quite some time.”
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