With the national economy still humming along and businesses counting on extra revenue from the Tax Cuts and Jobs Act of 2017, the New Jersey construction industry is looking forward to continued growth and expansion for 2019 and beyond. Industry leaders estimate as much as $45 billion in new projects breaking ground over the next two years, a billion dollar increase over last year’s projection. With rosy predictions and high profile projects pouring into previously moribund areas, one might assume that all that glitters really is gold for New Jersey. The industry, however, still faces a number of challenges they need to confront in order to take advantage of a flourishing economy and, of course, to cope with the inevitable downturn.
Until recently, the construction industry in New Jersey actually lagged behind much of the nation. Despite a number of advantages, such as its proximity to New York City, New Jersey has not had the overall rebirth that many other areas have enjoyed during the current expansion. Some people cite a lack of newer, fast-growing companies as a possible cause; they attribute the slower recovery to the state’s focus on retaining major employers instead of fostering new businesses. While no one debates the importance of keeping major employers within the state happy, many people would like to see a greater emphasis on attracting smaller companies within nascent industries that have more growth potential.
Another problem, which seemed unthinkable in the throes of the 2008 recession, is a shortage of skilled labor. An aging workforce combined with a lack of new talent entering the industry has even led to a backlog of projects under contract. Instead of drawing from the ranks of the unemployed, many commercial contractors wind up poaching from other companies. In many cases, applicants cannot pass simple steps such as the drug test. One hiring manager relates how eighteen job applicants failed their drug test, and one of the final two didn’t even bother to show up for work.
While a dearth of qualified labor may push up the timetable for automation within the industry, the days of fully autonomous workplaces are still years in the future. In the meantime, many companies are rethinking their hiring process by offering things like in-house training to upgrade the skills of their workforce. In addition, there has been a renewed interest in apprenticeship programs, including partnering with local high schools to establish a pipeline of younger workers into the industry. The New Jersey chapter of Associated Builders and Contractors, for example, plans to launch their registered apprenticeship program in the coming year. Rowan College in Deptford Township is taking it a step further by instituting the Rowan Work & Learn Consortium. Through this initiative, Rowan collaborates with local businesses, four-year universities, and other county colleges to prepare students for entry to specific industries upon graduation. It is believed to be the only one of its kind in the country.
While the residential market has shifted towards redeveloping older towns that already have public transit and viable downtown areas, the industrial sector now occupies the top perch within New Jersey construction. With financing readily available, many companies now build industrial spaces on speculation with the expectation of finding a tenant during or shortly after construction. As a result, commercial management companies often have to adjust their schedules to initiate construction before major tenants have even committed to a project. As more businesses embrace direct-to-consumer models instead of retail outlets, the demand for industrial warehouse space keeps rising. As one industry leader puts it, “Industrial is the new retail.”
An offshoot of this new demand for industrial space is companies’ increased willingness to choose sites that were previously undesirable either geographically or environmentally. Land that may not be located near transportation hubs or that requires extra cleanup is no longer off limits in this market. As a result, many commercial contractors take risks on sites that would not even have been considered in the past.
One of the most positive effects of the building boom is that a number of long-term projects to revitalize downtrodden inner cities are finally bearing fruit. For instance, the Urban Enterprise Zone in New Brunswick, which grants exemptions from sales tax on construction to new occupants, has seen an influx of substantial, mixed-use projects. Another urban center which has struggled for many years, Camden, has enjoyed a marked increase in building projects and employment since the state declared the city a Garden State Growth Zone.
With New Jersey home construction thriving in urban centers and industrial size warehouses serving as the new retail outlets of years past, construction and commercial management companies are in the unique position of being able to shape their industry’s future. Programs touting tax credits and incentives to underserved regions have laid the groundwork for the types of public-private partnerships considered vital to sustaining and expanding construction within New Jersey. The industry, however, needs to continue to innovate before growth slows down. For this reason, industry leaders must avoid complacency while they have the opportunity to make substantive changes. The problems currently facing the industry such as labor shortages or a lack of available space demand long-term solutions which will transform it in ways that will protect and nurture it when the boom cycle begins to bust.