Year-end: A time to reflect; a time to look ahead
Year-end: A time to reflect; a time to look ahead. As someone deep-rooted in South Jersey and well versed on the commercial real estate market, I am often asked to do both. For the past several years, the outlook hasn’t been short on negative news; 2014 is no different. Just look at the on-going struggles in Atlantic City. Yet looking both forward and backwards, we can also cite some positive signs – specifically for the commercial real estate market across South Jersey.
The State of New Jersey has been vigorously developing ways to foster business and employment. One such effort is the Grow New Jersey Assistance Program supported by the New Jersey Economic Development Authority and part of The New Jersey Economic Opportunity Act of 2013. One of two business incentives signed into law in September 2013, “Grow NJ” provides tax credits for companies creating and retaining jobs. Without going into detailed specifics, projects that meet certain criteria can receive such incentives, which strengthen New Jersey’s competitive edge against neighboring states.
Why are such programs so important to commercial real estate? There is a correlation between employment and commercial real estate. The higher the employment levels the greater is occupancy. Tax incentives have definitely played a part in attracting companies such as Destination Maternity and Five-Below to New Jersey and the City of Camden is much more in play, reflected by the generous grant package offered to the Philadelphia 76ers and Holtec. However to have the most impact, “Grow NJ” and other like programs must draw companies from outside this region, creating new economic activity and jobs. Relocations from Philadelphia to New Jersey or Marlton to Camden help the corporation first and local economy second.
Another positive development is “development” itself. South Jersey’s tri-county area has shown an increase in construction over the past 12 months. While “build-to-suit” projects have been steady, it is the noticeable increase in speculative construction in the industrial market that is a true mark of improvement. Further, investment capital is more readily available for financial stable investors to develop, reposition or improve property.
But not all news is good news. Rising interest rates may be a general sign of an improving economy but they are perceived to have a negative impact on many industries and commercial real estate is one of them. In addition to this increase being a critical factor in real estate valuations, it is also a factor that impacts capital and rates of return. The effect of a rise in interest rates remains unknown at this point and it will be the degree of increase most watched.
There are also recent trends that show both positive and negative signs. Recently, a number of Real Estate Investment Trust companies (REITs) have started to pull out of South Jersey. With these moves, one may view such a loss as a downward shift in the financial foundation of South Jersey’s commercial real estate landscape. However, the stability and capital associated with the area’s well-known REITs has been replaced with a fresh approach and excitement. Think about when someone buys a new home. Often it is a time to rip out the old carpet and replace with new; it is a time to repaint, re-landscape and make the space truly one’s own. The same is true in the commercial marketplace. The infusion of new owners is a welcomed change as it is this cycle of ownership that brings life to office, retail and industrial sites – both inside and out.
As always, there are dominant industries impacting our business. Leading the commercial growth in South Jersey continues to be the “meds” and “eds” sectors. Medical centers and educational institutions remain the growing industries here and in the Greater Philadelphia as a whole. They are driving new development as well as retrofitting existing space. For industrial sites, the majority of interest comes from logistics companies. South Jersey is well positioned geographically with great access to transportation and highway routes within the busy northeast corridor. As the economy continues to improve, consumer spending will follow, thus the greater need for industrial space.
So looking ahead, it can be said that “good things are a happening” and with a bit less hesitancy as in the past. It’s never good to where blinders but the positive signs have returned and will hopefully outweigh the negative.
Article Submitted By: K.C. Isdaner (pictured),
Chief Operating Officer
The Bloom Organization
1300 Route 73, Suite 106
Mount Laurel, NJ 08054
(856) 778-0300 - Fax: (856) 866-8924