BLOOMFIELD, NJ—Making accurate predictions about commercial real estate trends requires experience and observation, not a crystal ball, says Eugene Diaz, principal partner of Prism Capital Partners. Diaz shared his four predictions for the market this year with GlobeSt.com in an exclusive audio interview.

“If commercial real estate practitioners had crystal balls, would that be a good thing?” Diaz asks. “We might know the future, but the jury is out on whether being able to better anticipate shifts in our cyclical industry would make a difference – or just cause more gray hair.”

Diaz focused his predictions on four key sectors of the commercial markets, healthcare, office, multifamily, and build-to-suit projects encouraged by the Grow New Jersey incentives.

Healthcare: As hospitals, managed care companies and pharmaceutical firms all continue to adjust to the rapidly changing healthcare landscape, the market will be punctuated with multiple, large healthcare-related transactions. Already this year, the HUMC/Seton Hall medical school announcement and Cigna's acquisition of QualCare have made headlines. Additionally, merger discussions are underway between the Barnabas and Robert Wood Johnson health systems. “Volume, across the healthcare spectrum, is driving costs and reimbursements,” Diaz says. “The bigger you are, the better you fare.”

Office: Investment will accelerate, and office values will rise as the improving job market and the hunt for higher yields brings increased demand for this asset class. “The story of office in New Jersey is really the story of the changing face of the labor market in the New York metropolitan/suburban area,” he says. “In the early 1980s we were primarily a low-wage, data entry, data management marketplace and labor pool,” Diaz says. “Therefore buildings that were constructed during that timeframe were designed to accommodate that kind of labor force. Companies put a premium on the cost of that space because they had to have so much of it. Since 1991, almost 100,000 clerical/admin jobs have left New Jersey.” This transformation shrinks the floorplate that companies demand. “These buildings are essentially obsolete for today's labor force,” he says. However, buildings built for, or capable of being redesigned for, the new ways of doing business, will do well. In February, Morris Corporate Center IV, a nearly vacant, 350,000-square-foot property in Parsippany, traded to an Intercontinental/Ivy joint venture partnership. The sale price, which was not disclosed, is rumored to be double that which the market would have supported one year ago. Looking ahead, a return of structured finance transactions will help to bridge the bid/ask between buyers and sellers.

Multi-family: “Warning shots will be fired when interest rate and supply-side increases combine to scare weaker participants into lower effective rents as absorption returns to normalcy,” Diaz says. “This will back-up CAP rates, providing opportunities for smarter folks to buy toward the end of the year and into 2016. While we are still waiting for this prediction to show some legs, we are looking past it to forecast the resilience of the market proving out, buoyed by the improving jobs market, rising incomes and continued demand shifts from for-sale to rental. Job growth in New York is benefitting New Jersey, because not all those people can afford to live in Manhattan.”

Diaz also thinks there will be “a tremendous rush” toward build-to-suit transactions as companies and developers attempt to cash in on the NJ Economic Growth Grant program. In January and February alone, 10 projects were approved for $84.6 million in Grow NJ funding.

You can hear more in our exclusive conversation with Diaz in the audio player below.