From left, panel moderator Tom Bergeron, Editor, ROI-NJ; Andrew Merin, executive vice chairman, Cushman & Wakefield; Ed Russo, CEO, Russo Development; Alexander Heil, chief economist, Port Authority of New York & New Jersey and Chris Paladino, president, DEVCO From left, panel moderator TomBergeron, Editor, ROI-NJ; Andrew Merin, executive vice chairman,Cushman & Wakefield; Ed Russo, CEO, Russo Development;Alexander Heil, chief economist, Port Authority of New York &New Jersey and Chris Paladino, president, DEVCO

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SHORT HILLS, NJ—A panel of New Jersey-based real estateexecutives predict that the economy in the Garden State will coolsomewhat in 2020, while the industrial sector will remain hot.

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The panel convened at the NAIOP NJ Annual Meeting last week atthe Short Hills Hilton covered a host of topics, including theexpected re-introduction of incentives to the state's controversialeconomic development program.

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Alexander Heil, chief economist for the Port Authority of NewYork and New Jersey, noted that one year ago he predicted apossible recession in 2020 due in part to the current US tradepolicy placing tariffs on hundreds of billions of dollars ofimports.

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Heil said consumers came to the rescue of the American economyin 2019, and confidence has trended up for a considerable length oftime. However, he added that confidence among CEOs has deterioratedand business investment has declined, which are several factorspointing to a possible recession later this year, he noted.

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"The Federal Reserve in New York's model, which is a reliablepredictor, still sees a 24% recession probability in 2020, which isdown from 35%," said Heil. "Manufacturing, which is a largecontributor to the economy, is already in recession and employmentgrowth has stalled. In addition, the federal government is cuttingback after a period of significant spending."

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He cited additional negative factors ranging from the risingfederal deficit and a decline in the rate of job creation to thecost of climate change and wage gains that have not kept pace withinflation. While not coming out and predicting a recession in 2020,Heil did say, "We are not going to be seeing as much economicgrowth as in 2019, both nationally and regionally."

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Regionally, he pointed to a "a mosaic of important economicissues," that will put downward pressure on economic growth,including declining labor force participation, housingaffordability, a shortage of skilled workers in specific sectorsand tax law changes that have adversely affected the local realestate market.

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New Jersey is expected to continue to lag behind New York andthe region in employment growth, but recent gains seen innon-finance sectors such as healthcare, education and technologywill continue.

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ROI-NJ editor and chief content officer Tom Bergeron led a paneldiscussion that featured Christopher Paladino, president of DEVCO;Andrew Merin, vice chairman of Cushman & Wakefield; and EdRusso, president of Russo Development.

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Bergeron noted, "Incentives, or the lack thereof, seem to behurting real estate and the way businesses outside the state viewus." Paladino agreed, saying, "There are going to be incentives,probably sometime this spring, and they will likely be broader thanwhat was first proposed. But there has been some damage done,including to the reputation of the New Jersey Economic DevelopmentAuthority. I'm fearful that when we do have incentives, we willhave a long climb back."

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Russo added, "It's not incentives or bust. Obviously, they areimportant and there is tremendous uncertainty surrounding the nextincentives to come out of EDA. But if it takes another couple ofmonths, it doesn't mean we can't have a positive first half of theyear."

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The panelists agreed that incentives are critical toredevelopment initiatives in cities such as Newark, JerseyCity, Trenton and Paterson and the lack of incentives have come ata cost.

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"Pulling these incentives is going to hurt," said Merin. "We'realready seeing it in Jersey City, where there had been suchprogress but now things are terrible in the office sector."

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"There are real challenges in places like Paterson," addedPaladino. "If you look at some of the special things that were donein Camden and want to do it in Paterson or Trenton, which arereally struggling, you'll need to decide it's an important matterof public policy and create incentives no one else has."

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Russo said residential development in Paterson is difficult fora number of reasons, but the potential in Newark is tremendous."There's been a lot of talk about redevelopment, but not a lot hasbeen built relative to the size of population. That's absolutelygoing to change in the next one to three years."

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C&W's Merin predicts that the industrial market willcontinue to be strong, noting that the vacancy rate in central andnorthern New Jersey currently stands at 2.7% and the average rentis $8.90-per-square-foot.

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He added that of the 9 million square feet of industrial spacedelivered last year, a total of 60% was pre-leased.

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Russo added, "Over the past 12 to 24 months, it's been shockinghow much investment, land values and rents have increased. Webelieve it's going to be unparalleled in 2020, and we'll see$20-per-square-foot rents in prime states across the country whenin the past we couldn't get $10. What we don't know is whether it'sthe beginning of a trend with a lot of runway or if the market isoverheated."

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John Jordan

John Jordan is a veteran journalist with 36 years of print and digital media experience.