Cost of Doing Business Drives Firms From NJ

The trends show that the national economic slowdown is over, economist James Hughes of Rutgers University, told attendees. With New Jersey still possessing a "powerful, leading edge economy and high income levels," the state should continue to benefit from the "tailwinds" generated by the national economy.

That said, Hughes offered a major caveat. "New Jersey ranks high in housing costs, so our higher incomes are being consumed by those higher housing costs." That, coupled with a high cost of doing business in the state and a perceived anti-business climate is having an impact on New Jersey's competitiveness as a place to do business.

"Since the last recession, New Jersey job growth has been slower than the national average," Hughes pointed out, adding that the disparity has been most notable in two of the state's core sectors, telecom and pharmaceuticals. "New Jersey gained only 20,500 jobs in 2006, about half of what it should have been. There has been brisk corporate expansion, but it has been largely outside of New Jersey. These changes should come as a wake-up call," he said, calling for "more public policy input."

As far as his forecast, he predicted that the national momentum should help, but economic growth in New Jersey in 2007 will be "modest. Manhattan spillover is the biggest factor," he said, especially relating to the office market. He also called for the state to "re-brand and re-market" itself.

Against that backdrop, Stephen Jenco, director of client services for Grubb & Ellis in Fairfield, NJ, offered an overview of the current real estate market in the state. For the office sector, "if there were one word to describe it in 2006, it would be 'deceleration.' The volume of absorption decelerated in each quarter, giving way to negative absorption in Q3 and Q4," with the market's overall vacancy rate near 20% at year's end. Much of that he attributed to consolidations and downsizings.

Jenco predicted that the Hudson waterfront would continue to emerge as a viable alternative to Manhattan as that market gets tighter and more expensive. He also expressed concerns about the impact of fewer higher-paying as far as getting vacant space filled, and cited diminished confidence in the state expressed by business leaders.

On the industrial side, the market in 2006 "saw a surge in demand," Jenco told attendees. "That should unleash a wave of new construction." And a lot of that new construction could start sooner rather than later, because higher construction costs "could force developers to lock-in projects to save money." And in the overall picture, "the Port of New York and New Jersey continues to be a vital component."

Finally, on the investment side, "It should remain active in 2007," Jenco predicted, mirroring what has been going on in recent years.