Real Estate Predictions 2016 Buy, sell, hold

We know that playing in the commercial real estate market isn’t for the faint of heart — especially in New Jersey.

Trying to forecast the ebbs and flows of the market is no picnic, either. Fortunately, the Garden State has no shortage of developers and industry experts who are willing to weigh in.

With that, here are some predictions for 2016 from some of the real estate sector’s top professionals:

Mitchell S. Berkey, co-chair, Real Estate, Development and Land Use Group
Chiesa, Shahinian & Giantomasi PC, West Orange

We are bullish about 2016, but are closely studying potential game changers which could impact New Jersey real estate. Based on the number of building permits and shovels already in the ground, residential and mixed-use development, with residential as the driver, will continue through most of 2016 at or near the current breakneck pace. Sites within walking or courtesy shuttle proximity to mass transit — with a reasonable commuting distance to Manhattan — will remain first choice.

New Jersey rental apartment demand should continue as long as the delta between New York City and New Jersey rental rates remains meaningful. Foreign investor appetite, a strong job market and job seekers desiring Manhattan are three keys to maintaining that spread. But, early signs of rental rate softening due to the influx of units since the last downturn are appearing. And, the housing policies of the current New York City administration could temper the pace of new development. A wild card is the potential impact of any further international or domestic terrorism on the economy, and the real estate and financing markets in particular. Developers, equity investors and lenders will be keeping a watchful eye on all of these factors.

On the New Jersey office market front, challenges will remain. Time and the siphoning of tenants by new and rehabbed projects have caused many former Class A buildings to drop to Class B or lower. Repurposing of obsolete office stock to multifamily and other uses will continue. Value-add players have slim pickings in traditional asset classes, so converting old office to new residential will gain traction. This may be fueled in part by investors battling for the dwindling number of deals that promise opportunity fund-type returns. Creativity, perseverance and the ability to pivot as needed will all be essential to achieve office market success in 2016.

Dan Breen, executive vice president
JLL, East Rutherford

The New Jersey Economic Development Authority’s Grow New Jersey program has been a major differentiator for New Jersey from an economic development standpoint. It is a complex, evolving program that has already been amended on several occasions, and I can see that happening again in 2016. Whether or not the job creation and retention incentive program changes, I envision that New Jersey, like many other states, will continue to leverage discretionary, performance-driven incentives to attract and retain businesses. The availability of these programs will play a decisive role in location decisions made by businesses nationally and around the region.

Stephen Cassidy, president
Denholtz Associates, Matawan

While interest rates will inevitably rise in early 2016, they will still be historically low for investors that seek fixed income globally and locally. Borrowing costs can be expected to increase as well, which will cut into spreads between cap rates and debt. Overall, though, New Jersey can still expect to see moderate transaction volume as new forms of capital flow into commercial real estate.

Crowdfunding is a new and exciting way to bring previously untapped accredited investors into the market. Final regulations expected to be adopted by the SEC in 2016 should further allow nearly unlimited access to most investors at costs that may no longer be prohibitive to private companies. In addition to connecting new investors with real estate companies, advanced crowdfunding investor portals are providing real estate companies with exciting new technology, making it easier than ever to attract new capital. This trend should bode well for New Jersey markets longer term as well.

James Caulfield, principal
Fields Construction Co., Hoboken

We’re eyeing 2016 as a big year for what many have previously considered New Jersey’s secondary markets with transit hubs. For example, Harrison, fueled by a major influx of new top-quality housing product, as well as Newark’s sustained commercial boom, will soon be considered one of the state’s most coveted destinations for workers and commuters throughout the Northeast Corridor.

Elsewhere, Asbury Park is poised to make a major leap this year. In a region that’s largely devoid of urban dynamism — save Red Bank — Asbury Park has the right combination of cool and commerce. The new hotel developed by iStar is going to be a major anchor for Asbury’s waterfront development, but there’s plenty more planned in the way of new mixed-use buildings.

Ted Domuracki, owner and president
MAST Construction Services, Little Falls

The market is at its highest point since 2009, which is likely to continue through 2016.

In residential work, upcoming projects are being constructed with mixed-use components, especially in Jersey City, Weehawken, Edgewater and other cities along the state’s prime Gold Coast. Rather than being standalone investments, these developments have multiple aspects to them, where, in addition to residences, there also are a retail component and, sometimes, a hotel.

In all, rental-unit residences are in the forefront, which continues to be in line with the influx of young professionals looking for affordable homes in urban areas, including those within reach of price-prohibitive Manhattan. Even in Harrison, a new transit hub has prompted an increase in residential development.

Improvements to the infrastructure’s aging bridges and roadways also are likely next year, along with flood-mitigation efforts in the Hurricane Sandy-stricken areas of Jersey City and Hoboken. Another ongoing focus is the renovation of brownfields into parks and recreational areas.

Pending legislation aimed at the full gamut of educational facilities are sure to progress statewide, including increases in housing projects at area colleges. It’s also probable that design-build developments will persist throughout the state and major municipal projects in northern New Jersey will continue their public and private partnerships. Municipalities are making great strides in consolidating and updating old facilities with newer ones, a trend that benefits the state’s communities.

Dmitry Gordeev, founder and managing partner
Fairbridge Properties, Princeton

The increase in disposable income and consumer spending as well as the current trend among e-commerce giants for same-day delivery creates an additional demand for modern warehouse and distribution centers in large, densely populated areas such as the New York/New Jersey metropolitan area.

The commercial mortgage-backed securities market will have another strong year in 2016. This fact, coupled with the increase in safe-harbor-seeking capital flowing from abroad, will put upward pressure on real estate prices in primary and secondary markets.

The office vacancy rate will continue to shrink as the U.S. economy continues to expand at 2 to 3 percent annually.

William C. Hanson, president
NAI James E. Hanson, Hackensack

Quality industrial properties driven by e-commerce and port activity will continue to get increasingly tight, especially the properties closer to urban centers. We expect rental rates to rise and that new development and retrofitting of existing buildings will continue. Investment acquisitions should stay hot.

While there was a great deal of new investment and repositioning of office buildings in the third and fourth quarter in 2015, we expect demand to remain modest.

In retail, properties in the ‘A’ locations and corridors will perform driven by entertainment destinations and necessity uses. Properties in ‘B’ locations will be likely remain challenged.

Multifamily, which has been the hottest sector in the industry, will remain strong for both investments and new development.

Azi Mandel, principal
Treetop Development, Teaneck

In 2016, we can expect to see the continued emergence of dynamic urban residential hubs in areas of northern New Jersey that had previously been underappreciated by developers, owners and residents. These burgeoning areas — which include East Orange and Belleville — will see an influx of development geared toward modernizing residential properties and the retail streetscape in order to enhance the overall living experience for residents. As Hoboken, Jersey City and other Gold Coast residential markets become increasingly unaffordable for middle-income residents, these “secondary” urban markets will be recognized by this demographic as viable alternatives.

W. Nevins McCann, partner
Connell Foley LLP, Jersey City

Although 2015 wasn’t a great year for the stock market, if the real estate market is as strong in 2016 as it was in 2015, then I will take it! New Jersey is on the front lines of economic development. With robust state incentives, we will see more companies abandoning New York and other states and flocking to New Jersey. Hudson waterfront office prices will certainly increase, but so will demand for space — the savings compared to New York City are too attractive to keep businesses away.

Despite the looming rise in interest rates, multifamily will not slow down, as demand will be driven by millennials who are more inclined to rent than to buy. Transportation in the region is taxed, so look for the third tunnel to be fast-tracked. Lastly, if there is to be any hope for Atlantic City (and other communities in need), gaming expansion must come to North Jersey in 2016!

Jeffrey G. Otteau, president
Otteau Valuation Group, East Brunswick

There’s good cause for optimism for the real estate markets in 2016, especially in New Jersey. The faster pace of the state’s job gains in 2015, coupled with continuing improvement in the financial markets, has led to significant demand growth across all of its real estate sectors. These improvements have been widely evidenced in near-record home sales volume, rising apartment rents, accelerating office leasing activity, rising retail sales, high-flying warehouse construction and higher hotel occupancies. And so, while the gravitational pull of New Jersey’s subpar economic performance in recent years is still evident, the glass now appears to be ‘half full.’

Looking ahead to the New Year, there’s nothing on the horizon that is likely to reverse these positive trends. Sure, higher interest rates will ‘trim the sails’ a bit on home buying and the torrid pace of warehouse demand will cool a bit, but 2016 is shaping up to be a very good year for New Jersey real estate.

Jeffery Sica, founder
Circle Squared Alternative Investments, Morristown