Interview: Stephen Schoch

Stephen Schoch

Managing Principal Kitchen & Associates

What are some of the unique opportunities in South Jersey?

The fundamentals of South Jersey are not affected that much by the pandemic itself. It’s still about physical location and convenience. You’re close to the city but not necessarily right in the city. You’ve got very easy access to New York, Philly, Washington and Baltimore. The fact that people realized they can effectively work remotely is an opportunity in the residential sector. A lot of people are looking for housing, whether it be multifamily housing or even single-family houses, in locations farther away from their workplace as commuting becomes less of a factor.

The notion that I can live in a small footprint because “the city is my living room” is changing. Every single project is rethinking things like unit square footage and whether to have that extra area for the home office so it doesn’t feel like you’re working on the kitchen table anymore. As a result, the market now is very active. If you don’t look and put an offer in on a new home or condo that goes on the market within 24 hours, you’re done. There’s so much demand on the for-sale side. It’s a real opportunity for residential development, especially entitled projects that are ready to start.

What are the biggest challenges for your business?

Rising costs are a huge challenge. A lot of what we do typically starts with the conversation to keep the building small enough so it can be built out of wood because that is traditionally cost-effective. But now the cost of wood-frame construction is going way up. Lumber has doubled – or more – in price in some areas. It’s not just lumber, it’s drywall, it’s all the basic building materials that you need to buy. It’s especially a challenge for affordable housing projects because the contractor must give a price before applying for the funding. You apply for the funding without knowing whether you have a real deal or not until about six to eight months later – and none of those prices are able to hold in this climate of price escalation.

Hybrid working due to the pandemic will have long-term effects on how future buildings are designed.

e-commerce growth by two years, e-commerce analyst Digital Commerce 360 reported in June.

What was a vital way to buy almost any product was more than just a temporary solution as evidenced by the continuous growth of e-commerce sales in 2021. In total, U.S. online retail sales increased more than 32% year-over-year in 2020 and rose 39% in 1Q21, the research organization reported. The continued growth in e-commerce coupled with changing consumer preferences bodes well for warehouse and logistics companies and the industrial sector as a whole for the state and South Jersey in particular.

More than 12 million square feet of industrial space was leased throughout New Jersey in Q2 led by e-commerce and third-party logistics companies, according to JLL’s 2Q21 Industrial Report. Unlike office, market indicators for the industrial sector point to a historic, record-breaking year for the industry.

Total vacancy in the quarter sat at 2.5% statewide, with more than 14 million square feet under construction. About half of the new construction activity, or approximately 6.9 million square feet, is happening in the South Jersey submarket. Concessions are falling, direct and sublease rents are trending up, demand remains high and “developers are in the driver’s seat,” the brokerage reported.

As of Q2, JLL is recording more than 26 million square feet of active requirements statewide, up from 25.5 million in Q1. “Expect 2021 to surpass 2020 as the market’s strongest year of leasing history. With Class

A vacancy at record lows and incredibly resilient preleasing rates, developers are in the driver’s seat when it comes to lease negotiations. Thus tenants looking for class-A product should act quickly and pay high-watermark rents to secure new construction availability,” JLL wrote.

Those tenants looking for new industrial space and potentially lower rents can look to South Jersey for market opportunities. With approximately 2 million square feet of new construction delivered in the first half of 2021, the South Jersey submarket has outpaced the state in new deliveries and new construction while at the same time offering considerably more affordable rents when compared to statewide trends. Direct asking rents statewide sit at $10.47 per square foot. Comparatively, South Jersey features an average direct asking rent price of $7.92 per square foot with some submarkets offering even more affordable prices. For example, Camden and Cumberland counties feature attractive rents averaging $5.80 and $4.85 per square foot, respectively.

Evidently, the industrial sector is offsetting much of the pandemic disruption in the overall commercial real estate market. The new industrial construction activity happening throughout South Jersey positions the local market to compete for key economic development activity in the manufacturing, logistics and warehouse space. As companies look to expand operations, availability of space will be crucial in the decision-making process. South Jersey’s strategic location along the Delaware Valley opens up possibilities for companies wanting to tap into both the South Jersey and Philadelphia markets with the added bonus of considerably more affordable rents and cost of doing business.

Multifamily Much like the industrial sector, New Jersey’s multifamily sector bore the brunt of the pandemic blows with unwavering determination. In South Jersey, affordability and healthy rent growth make the local market attractive for tenants and investors alike.

After an initial market dip in spring 2020, the multifamily sector has remained stable and resilient throughout the ongoing health and economic crisis. To that end, key local markets, such as the city of Camden and Cape May County, experienced healthy rent growth throughout this cycle. The initial doomand-gloom predictions of severe drops in rent growth and construction starts coupled with lack of availability to capital were phased out as the cycle progressed, exemplifying the local market’s resilience while positioning the sector for positive investment activity moving forward.

Affordability anchors South Jersey’s multifamily market, especially when compared to northern and central New Jersey markets. Across the Delaware River in Camden, considered a key component of the Philadelphia MSA, average rents stand at approximately $1,038 for an averaged-sized apartment of 723 square feet, RentCafe reported. Despite the COVID-related challenges to the local economy, rents in Camden saw an increase of 2% compared to the previous year. In comparison, a popular northern municipality such as Jersey City, located in Hudson County, experienced a sharper decline in rents for a similarly sized apartment while averaging prices double that of Camden. The average rent for an 824 square foot apartment in Jersey City stands at $2,739, which is an 8% decrease compared to the previous year, according to RentCafe. Further down the South Jersey market, over at the Jersey Shore, the average rent stands at $1,585 which is a 5% increase year-over-year.

Overall, the Garden State features a robust multifamily construction pipeline for 2021, according to the Yardi Matrix 2021 National Outlook report. The state is anticipating approximately 4,955 multifamilyunit completions this year. That represents 29.9% growth in completions year-over-year, according to Yardi Matrix, placing New Jersey at No. 22 in the firm’s Top 25 multifamily markets for 2021.

Though the bulk of 2021’s projected completions are concentrated in the northern portions of the state, as ( )