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WHAT’S THE BIGGEST ISSUE FACING NEW JERSEY COMMERCIAL REAL ESTATE?

With economists warning of a recession, it’s hardly surprising that half of this week’s poll respondents cited the economy as the major issue facing New Jersey real estate. Not far behind, at 41%, is government and legal matters. A scant 10% believe something else will be the major issue. David Houston, president of Colliers Houston in Teaneck, buys in to the majority opinion. Here are his thoughts:

“It’s very simple. There’s one issue: Is the economy going to go into recession or not? On the office side, it’s all about creating jobs, and we’ve done a very poor job of that in the past few years. Joe Seneca and Jim Hughes [of Rutgers University's Bloustein School for Planning and Public Policy] have a report out about that, which shows that we have had an outward migration of 70,000 people this year. That’s the highest in the country, and unless we can create jobs, and obviously a recession does not create jobs, the office market is going to stay right where it is. Office vacancy rates have been almost unchanged for five years.

“On the industrial side, the health of that market is determined by retail sales. Needless to say, a recession does not help retail sales. So, in terms of office and industrial real estate, the key to the market is going to be the national economy. As a port of entry, we have some advantages over the Midwest and some other places, but that’s the number-one issue, the national economy.

“The number-two issue is if New Jersey can get its act together. Our historic advantages, our location, our talent pool and our quality of life, have been severely eroded by technology. Our location is less important, and our excessive government and the cost of that government have made us less competitive compared to other states in the union. We are slightly more attractive than Rwanda as a place to do business right now.

“The next six months are going to be critical. For the first time inflation is rearing its ugly head, the Fed is caught between stimulating the economy to avoid recession and keeping inflation in check and I don’t know which way they’re going to go. The dollar is obviously in a nosedive, which helps us in terms of exports but hurts us in terms of imports. The imports are going to add to the CPI. On the other hand, manufacturing might be stimulated somewhat. It did not appear to recently, but where the dollar hits is a huge issue. It makes American companies vulnerable to foreign takeovers. It makes American real estate very cheap for foreigners to buy, but it also may mean that certain foreign companies that have been investing heavily in American real estate might decide that they want to go elsewhere because they’re not certain of the stability of the dollar, which was heretofore a safe haven.

“In the recession that came in the early ‘90s, New Jersey got clobbered because retail sales plummeted. When that happened, there was job shrinkage. We went from 3.7% unemployment in ‘87 to 9.6% in ‘91. You saw most buildings lose 25% to 40% of their value. The industrial market went from 40 million sf of vacant space to 120. In the last recession in 2001, retail sales and homebuilding held up, and as a result, there was virtually no diminishing in office and industrial values and virtually no increases in vacancy. So, the question is, if we have a downturn in the first or second quarter, is it going to be a George I or George II situation? The key going forward is job growth and retail sales. If retail sales hold up we’ll do well as a state.”

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