Seeking Closure
When it comes to real estate in New Jersey, it’s hard not to make a surface level judgment of how cost has skyrocketed and accessibility has narrowed. However, this is a trickle-down effect that begins with labor, material and construction regulations like zoning and permitting. Shortages across the world have led to delays, and increased time consumption often raises cost; materials increase in expense with diminished availability.
“During the pandemic, global supply-chain issues made it tough to source materials, causing further delays and cost overruns. The sharp rise in prices for key construction materials like lumber and steel, coupled with labor shortages due to health concerns, led to significant setbacks. Additionally, rising interest rates further complicated the financial landscape, increasing the cost of borrowing for new construction projects,” explain President of NAI Mertz Corporation Scott Mertz, SIOR, and Sales Associate Ryan Brennan. “Despite these challenges, construction starts increased as developers responded to the surge in demand for industrial space driven by the rise of e-commerce and the need for more distribution and warehouse facilities.”
Younger generations can only dream of owning property—residential or commercial. In the same regard that regional real estate is affected by the industry as a whole, residential and commercial real estate are also inherently intertwined.
“Both residential and commercial real estate are feeling the impact of high interest rates, inflation and low inventory. With potential rate cuts from the Federal Reserve on the horizon, both markets might see a boost as buyers are waiting for better rates. Residential and commercial markets are linked: More homes can drive demand for commercial spaces, and more commercial development can boost demand for housing. Success in one helps the other, but a downturn in one can also drag the other down,” says Nick Manis, the past president of New Jersey Realtors. He adds that new listings as of August this year are up 3.4%.
Due to the modern popularity of remote employment options and rapidly innovating communication resources, many commercial, industrial and retail businesses do not necessitate a physical property to serve clients—leaving vacancies in high supply with a high demand to match, but high competition that leads to limited attainability.
“The limited supply of smaller spaces is due to the economies of scale that deter developers from building properties of this size, resulting in higher rental rates and a competitive market for tenants. Additionally, the pandemic’s supply-chain challenges have spurred a trend of reshoring and nearshoring by manufacturers, which further influences demand. While landlords continue to benefit from demand trends and healthy occupancy levels, they must navigate rising construction costs, potential delays and the impact of rising interest rates on financing,” agree Mertz and Brennan.
They also describe how new deliveries across South Jersey have decreased due to high vacancies—but Salem County is a deviation from this trend. “With 4.4 million square feet of active construction,” the township is a hotspot of more affordable land and is in close proximity to major transportation routes that allow logistical and distribution benefits. This shift demonstrates developers targeting growth potential over already established areas.
According to Commercial Metro Market Report Q2 2024 data collected from Atlantic City-Hammonton by the National Association of Realtors, office, industrial and retail spaces are in higher demand than the national average. For comparison, multifamily residences have a faster price escalation and lower vacancy rates than the national average. Manis says this is leading more people to rent because of high interest rates and less rent discounts than before the pandemic. This supply and demand in real estate is referred to as “absorption.”
“Office vacancy rates are still at record highs with more spaces being vacated than filled. This trend is expected to continue, leading to higher vacancy rates and negative net absorption through at least the next year,” explains Manis, in reference to data from the National Association of Realtors August 2024 Commercial Real Estate Market Insights. “Retail real estate thrived from 2014 to 2017 but took a hit with the rise of online shopping and then COVID-19. Space availability is tight; only 4.7% is up for lease, a record low, which has kept vacancy rates near 4%. Over the last year, retail net absorption was 34.1 million square feet, rent growth was 2.4%, and the cap rate was 6.9%. After booming in 2022, industrial real estate is now dealing with too much supply and declining absorption. Over the past year, net absorption dropped 68%, reaching a 10-year low of 83.4 million square feet.”
Paired with this information is 2024 economic data compared to U.S. averages, which provides additional insight into these numbers. When assessing the same area in Atlantic County, the National Association of Realtors cites a one-year job growth rate of 0.8% and a one-year wage growth rate of 2.5% compared to the national rates of 1.7% and 3.5%, respectively. The unemployment rate is 6.1%, which is 2% higher than the national unemployment rate. This data, of course, is only reflective of a part of South Jersey, but it provides insight toward the incongruous nature of a post-pandemic economy.
“We feel the most important factor is to spend time speaking with a buyer. We ask questions as to what jobs they have done in the past and what kind of business they think they would like,” says David Hoffman, owner of DHA Brokers. “But, here is where we differ. We won’t sell a business to someone who we feel does not have the ability to run it. We don’t want them to fail. That’s why we help them pick a business that fits their financial needs, their personalities and ability to run it successfully.”
Despite successful acquisition of a property and the extreme demand, businesses close rapidly since COVID. High demand and high vacancies show that the widely desired goal to own property is difficult to obtain for the average person right now. This landscape can create a daunting experience for first-time buyers—but despite all of the data, it is not impossible to buy property in 2024. It just may take more thorough research, planning and consulting with professionals.
“Our website talks about the ‘Fair Deal.’ Although we represent the seller in a transaction, it is our position to help educate a buyer in all facets of buying a business,” says Hoffman. “This includes helping them pick the right business and finding a business that’s in their price range. Since we are a full-service agency, we also [are] helping with the financing of a business.”
It is difficult to predict the future of real estate and when these fluctuations will stabilize to allow business owners to acquire property without being priced out. Self-started companies are in vogue more than ever, as the pandemic inspired many people to launch their own businesses. With the internet as a tool, a brick-and-mortar location is not always required anymore—which can help establish an initial reputation, a customer base and financing to put toward a physical location. The reality of commercial real estate in 2024 is harsh, but the multitude of options available can help a prospective buyer persevere regardless.
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Published (and copyrighted) in South Jersey Biz, Volume 14, Issue 9 (September 2024).
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To read the digital edition of South Jersey Biz, click here.
Published (and copyrighted) in South Jersey Biz, Volume 14, Issue 9 (September 2024).
For more info on South Jersey Biz, click here.
To subscribe to South Jersey Biz, click here.
To advertise in South Jersey Biz, click here.
Author: Carly Murray
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