Port Authority’s Alexander Heil Talks Uneven Employment Gains and Office Sector “At a Tipping Point” in Advance of CAPRE 5th Annual Newark CRE Summit

JERSEY CITY, NJ — Dr. Alexander Heil is the Chief Economist in the Planning and Regional Development Department of the Port Authority of New York and New Jersey. As Chief Economist, Dr. Heil provides strategic leadership on regional economic issues to the agency. He is responsible for developing and managing the agency’s economic research and analysis agenda, helping to ensure that the agency’s major investment and policy decisions are informed by sound economic principles and analysis, and increasing awareness of the region as a unified economic entity by regional governmental, business, and civic leaders. Dr. Heil will be the Keynote Speaker at CAPRE’s upcoming 2018 Newark CRE Summit, so we connected with him for a sneak-peak Q&A of the event.

Alexander Heil, Chief Economist, Planning and Regional Development Department, Port Authority of New York and New Jersey

CAPRE: We’re looking forward to hearing from you at CAPRE’s Fifth Annual Newark Commercial Real Estate Summit. What are you looking forward to about this upcoming Summit?

Heil: It should be a good event. I always look forward to getting out there. It’s one thing to look at data to understand the regional economy. But actually being out there, talking to people, seeing what the actual activity is like is very helpful. I’m looking forward to acquiring some better context for this data and theories that I spend so much time working on.

CAPRE: What’s the most important trend happening in the region right now?

Hell: The region I look at, for the most part, is a 25-mile radius around the Statue of Liberty. The region overall has done fairly well for the last decade. We now have the longest economic expansion in history — we just hit that in July. And the region certainly has done well. Even New Jersey has seen gains in employment, which is beneficial and positive.

However, I think it’s unfortunate that some of these gains have lagged behind the country and even New York City. There are some parts of the state where there is some growth still, and some of that growth has been in the typical sectors such as professional business services, healthcare, technology, education. There’s growth there. But if the state could move up its rate of growth with employment, that’d be helpful. Employment gains have been pretty modest in New Jersey overall.

CAPRE: Tell us more about employment – what are the bright spots and the not-so-bright spots?

Heil: Some of the sectors that were over-represented in New Jersey, the dominant sectors, have not seen so much growth over the current cycle. Finance is an obvious example. On the pharmaceutical front, there’s also been less growth than expected. So there’s this diversification of employment that’s occurred. That’s generally not a bad thing. But some of the growth has taken place in lower paying jobs, which have taken the place of higher paying jobs. That’s been a problem for the state in terms of income growth.

CAPRE: Do you think the region is ready to withstand a potential economic slowdown? Many people we talk with in the CRE space tend to be pretty confident.

Heil: From what I’ve seen on the real estate side, it’s all a function of how you define the price levels. On the luxury condo end of the multi-family market, for example, that part of the market has softened. Prices have kept firmer on the lower end. Going forward, it’s likely that some of the softening in the higher price market is going to trickle down into the lower price market.

On the other hand, it’s also true that New York City is very attractive as an engine of growth. A lot of people want to be in New York City. The tech sector in the city has even been growing. So there’s always demand. I don’t see a collapse. But a softening of prices over the net 12-18 months is somewhat likely.

CAPRE: So it could go either way.

Heil: Overall, it depends on what the reason for the recession is. It’s unlikely that it’s going to be a collapse like we had in 2008. In that case, the region is probably going to be able to manage that reasonably well, because a lot of our activity is in finance. But it’s diversified. Healthcare, education, even spending by the public sector has been strong. That should buffer some of the forces that could pull an economy down during a downturn.

CAPRE: Let’s shift gears. What’s the latest on the industrial side of things?

Heil: We’ve seen lots of activity move from New York to New Jersey in terms of warehousing. Entire logistics patterns have been upended and moved. It’s sometimes difficult to get data in terms of leasing, but you can see the data in warehousing employment – which is up by several factors. The delivery models are changing. It’s hard to make a delivery model work in New York City – it’s so congested and there’s such a high price point in terms of time. But you can make it work in New Jersey. Plenty of stuff has been happening there.

CAPRE: What can you say about the office sector in New Jersey? Is it as strong as industrial?

Heil: Well, for offices, a lot of firms have decided that being far from the city might not be the best thing anymore. That isolated office park model may have worked a generation ago, but likely isn’t working now, because the new workforce doesn’t necessarily want to be out there anymore. So the question is when those properties might become abundant enough that perhaps something like research and development might want to start moving out there. We’re sort of at the tipping point when it comes to these big traditional office parks.

CAPRE: What about retail?

Heil: Then, the retail is going through consolidation. Traditional malls have been going through a hard time, and the retailers are in a position to find a differentiated way to approach the market. Best Buy has really stepped up the customer service side – if you need a place to go when your computer isn’t working, that’s a good place to go, which is different from a lot of the places that have sales only. That’s the kind of things that can be a real differentiator.

CAPRE: Thanks for your time and input, Alex. We’ll see you in Newark next week!

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