In last month’s newsletter we said that making long-term decisions in the face of economic uncertainty is a real challenge for New Jersey business owners. There are several factors of note that are causing business owners to feel that uncertainty.

TARIFFS:      

While we don’t usually focus on international trade issues, this month the full impact of the long-anticipated international trade tariffs is going into effect.  New Jersey has some of the nation’s largest foreign and international trade zones in Elizabeth, Salem and Mount Olive.  So far, the effect of the new tariffs on our companies and consumers has been minimal, with little rise in the price of goods. The good news is that Countries being effected by the new tariffs have so far been reluctant to raise prices on the American consumer and they seem to be absorbing the hits, and we hear zero talk of retaliation of trade wars. 

INTEREST RATES:

We can all see the battle that is waging between FED chairman Jerome Powell and President Donald Trump over interest rates.  Mr. Powell is taking the position that the effect of the tariffs on inflation are yet, unknown.  Mr. Trump on the other hand is claiming that inflation for the last few months has been tamed. That claim is based on the current CPI statistics showing that the annual rates are near 2 percent, evidence that inflation is not much of a factor at this time. These rates are dramatically better than the historic 9 percent inflation spike under the prior Biden Administration.

RESIDENTIAL MARKET:

The residential housing market is stalled.  Briefly, there are very few single-family homes on the market for sale, as existing homeowners, for the most part, are reluctant to trade their low interest mortgages of 2-4 percent for today’s much higher 7 or even 8 percent ones.  In just the past five years interest rates have doubled and then doubled again.  Many new homeowners find themselves priced out of the market as the market prices for the few homes that do come to market continue to rise.  Many prospective new and first-time buyers find that they no longer qualify for a mortgage at these historic rates.  Most Gen Z-ers are forced to rent, losing out on an entire generation of equity investors. 

COMMERCIAL OFFICE AND INDUSTRIAL MARKETS:

Readers of this newsletter understand the new realities in the world of commercial real estate.  In the office market, only the most stable of companies are able to make long-term rent or purchase commitments at this time. As we have pointed out, in the leasing world, a turnkey lease transaction today may require a long-term lease commitment of a decade or more to amortize the enormous cost of new construction.  Most banks are still reluctant to lend money for the purchase of a commercial office building, so small and medium sized companies are forced to work with the SBA, Small Business Association.

In the industrial sectors, purchase prices and rents are even higher as warehouse and manufacturing pricing is still near or at all-time highs.

CONCLUSION:

There are many business owners here in New Jersey that are in a wait-and-see mode, unwilling to commit to new inventories or growth until they understand the impact that the tariffs and interest rates will have on their bottom line going forward.  The collateral effects of these issues on our business and real estate sectors are enormous. 

We may be in for a rocky road until the full effects of the trade tariffs are known and factored into our business owner’s psyche, and until the FED decides to finally lower interest rates.  In the meantime, we expect that many business owners will be forced to simply wait and see.

In spite of the uncertainty that is out there, we continue to work with a group of select customers, showing them ways to make long-term decisions in a short-term economy.  For a confidential conversation about effective strategies for your company, why not give us a call to find out why, at Dickstein Real Estate Services, “OUR DIFFERENCE IS YOUR ADVANTAGE®”.

          Regards,

          Lawrence Dickstein