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The basics:
- ACCNJ Fall Convention featured economist Jeffrey Otteau‘s outlook
- NJ construction spending expected to exceed $16B in 2025
- Lower interest rates, infrastructure funds boosting new project starts
- Labor shortages, wage pressures and tariffs pose industry challenges
More than 200 attendees recently gathered at the Ocean Place Resort & Spa in Long Branch for the The Associated Construction Contractors of New Jersey‘s Fall Convention. In addition to entering a two-year Alliance agreement with the Occupational Safety and Health Administration Region II office, a keynote delivered by former monk Pandit Dasa and more, ACCNJ’s three-day event closed its Sept. 11 daytime programming with an economic outlook presented by Otteau Group Managing Partner and Chief Economist Jeffrey Otteau.
The sun shone outside on a perfect late-summer shore day, with the construction industry forecast delivered inside matching that brightness.
The message was clear: “No matter how you slice it, it looks like there’s a lot more business coming into the sector.”
Beyond offering a peek at what’s coming down the pike, the presentation also underscored the “vital” role construction plays in our economy.
After setting the scene with a general economic overview, Otteau offered a closeup on local construction spending along with a breakdown of the impact and economic benefits of the sector.
Detailing reduced inflation – at 2.9% according to a reading released that morning – Otteau cautioned, “We’re not to the promised land yet. But we’re getting awfully close.”
And as interest rates catch up – or come down – to match falling inflation, he predicts it will encourage project starts, providing a boost to construction spending, employment and revenues in New Jersey.
On Sept. 17, the Federal Reserve delivered its interest rate cut this year. In announcing the quarter percentage point reduction, the Fed cited rising “downside risks to employment.”
“Generally speaking, when interest rates decline, the economy grows and construction spending increases even more than we’ve seen already,” Otteau said. “So, we really are at a good place … in terms of where we are today and what’s coming.”
Another encouraging sign is the steady decline in the price of oil, which he noted has been occurring since the start of the year. In its Sept. 9 report, the U.S. Energy Information Administration projected that fall would continue through year-end. An overview of recent years shows a steady decline over time in the price of Brent crude oil per barrel from $82 in 2023 to $68 this year and an anticipated $51 price point in 2026.
The decline suggests there will be less inflation moving forward, Otteau said. And taking such contributors into account, “We really are at the beginning of a very good time for the construction industry, for the economy overall and for real estate markets.”
Building up
According to data presented by Otteau, as interest rates rose the volume of commercial investment real estate property sales in New Jersey fell by more than half – from $13 billion to $6 billion. “But we’re starting to see that ramp up, because interest rates have come down a little bit on construction lending and on permanent lending for commercial real estate, and that volume is kicking up,” he said.
And that movement foreshadows construction starts will improve, as well.
“Because as investors buy office buildings or retail centers … then there’s the recapitalization, there’s the renovations, there’s the property improvement plan that goes along with that increased activity, which we project will continue to rise now into the remainder of this year and out into next year,” according to Otteau.
It’s quite a reversal. He noted that CRE construction spending fell from 2022 to the end of 2024. Due to the high costs of borrowing and construction, “It didn’t make sense to build anything.”
Commercial real estate construction spending fell from 2022 to the end of 2024, according to Otteau Group Managing Partner and Chief Economist Jeffrey Otteau. – DEPOSIT PHOTOS
In a little less than five years since the start of the pandemic, construction costs for new projects have gone up by 34% in North Jersey and 32% in South Jersey, according to Otteau.
“And it didn’t make sense to buy anything, because your interest on your loan cost you as much as your income and you really weren’t going to make any money at all,” he continued. “We’re seeing that commercial property values are now beginning to increase across the board, and that tells us that there will be more value, more deal flow, more repair and improvement programs across the construction spectrum.”
Local commercial real estate transaction volume across sectors jumped from $8.2 billion in 2020 to about $13 billion in both 2021 and 2022, before falling to $5.9 billion and $6 billion, respectively, in 2022 and 2023. Data in the presentation estimates that figure will start to rise again this year, to $7.5 billion.
Limited labor
New Jersey is already leader when it comes to construction spending.
While national figures have fallen 3%, locally they’re set to rise 17% above 2024 levels this year. “That’s a big number,” Otteau said, noting that most year-over-year changes range from 2% to 5%.
Aggregate construction spending in the Garden State will add up to more than $16 billion this year, according to the presentation. And while Otteau says the state is doing well, the increase in activity does raise concerns about the labor pool and how wages will respond.
In contrast to a slow rise in wages in the general economy, he noted, “not in construction — because there’s going to be more and more demand with a limited supply of labor people to work those jobs.”
That will keep wage inflation a “significant challenge” on the local scene.
In addition to wage concerns, looking closer at New Jersey construction jobs also creates some confusion, Otteau said. Despite the increase in activity here, total sector jobs figures from the Bureau of Labor Statistics began to dip at the end of 2024, before sliding down to 156,000 total in July of this year.
“The New Jersey numbers don’t make any sense to us, where we’ve had a continuing string of substantial job losses, fewer people working in construction in recent months – even though spending is going higher and higher,” Otteau said.
Off the books employment could be boosting this number. Otteau also noted that the percentage of undocumented workers in New Jersey construction is “significantly greater” than the rest of the country. In addition, there’s a deficit of young people entering the workforce.
Unfortunately, the fix there may be a tougher sell in the current political climate. “We have a labor shortage that’s coming online here and the only way that we’re going to be able to address that is to increase immigration,” Otteau said.
In a piece detailing birth rates falling to a 40-year low in 2023, Time echoed that sentiment, noting, “The total birth rate has remained below the level of replacement since 2007, meaning the U.S. depends on immigration to sustain current population levels.”
When it comes to tariffs, Otteau said the construction industry should expect increased costs. “Because margins are relatively tight to begin with – the costs are high, land costs are high, construction costs are high – the lion’s share of tariffs pass through into construction inflation. And we see that beginning to develop here,” he said.
Following a decline in 2023 and 2024, the cost of construction – and, essentially, materials – is starting to rise again in 2025. Otteau highlighted 4.2% construction inflation in North Jersey and 3.5% in South Jersey.
“So, you’ve got wage pressures, because of a tight labor pool, and [the] industry [has] cost inflation due to the cost of materials largely due to tariffs. And so, we’re going to have continuing pressure there.”
Sector spotlight
Focusing on the commercial real estate industry, the presentation considered seven sectors: Multifamily, Single-family, Commercial, Industrial, Health/Education, Government and Civil (roads, bridges, heavy and highway).
Across those areas, spending (including materials and labor for new projects coming online) and starts are up year to date 17% and 18%, respectively. “That tells us that spending is going to go higher because the new starts will generate spending dollars for one, two, three, four years until they get to the point of completion,” Otteau said. “So, there’s more construction coming into the pipeline than we’re already seeing, and that’s sort of a really good picture to see.”
2130 Center Ave. in Fort Lee is a fully entitled multifamily development site. -PROVIDED BY WEISS REALTY
Government work led increases with a whopping 145% increase in starts so far this year and 88% in increased spending. However, that big number is expected to fall in the coming years as states spend through the government funds doled out to them during the pandemic.
“Another reason it’s going to run out, and the spending will stop is that New Jersey appears to be heading toward what we call a fiscal cliff,” Otteau added. “Meaning that expenses will exceed revenues by about $5 billion in about four years, and that’s going to lead to a cutback in government spending and higher taxes in order to close that gap.”
Behind Government, Civil spending followed with a 20% increase in year-to-date starts and a 26% uptick in spending. In 2023, New Jersey recorded $1.40 billion in Civil construction starts, according to the presentation, the next year it grew to $1.95 billion. This year, that figure is $2.34 billion .
Referencing the federal Infrastructure Investment and Jobs Act enacted in 2021, Otteau characterized the funding as, “Money that was slow in coming … but it’s out there now” and overall, spending is “off to the races” in the Civil space.
That escalation is true of all sectors, except one. Following Civil sector total construction, starts in 2025 add up to:
- Multifamily $1.78 billion
- Health/Ed $1.69 billion
- Single-family $1.60 billion
- Government $823 million
- Commercial $443 million
As for retreats in year-to-date starts in 2025, Industrial, the darling emerging from the pandemic, saw a 73% YTD drop in new starts while spending was up just 5%.
Otteau characterized these figures as a correction from prior years’ excess.
According to the presentation, construction spending for Industrial did get a reprieve last year, hitting $582 million and surpassing 2023’s $175 million figure.
The 73% drop brings spending back down to $185 million.
Also in the
Fall 2025 Real Estate Report
DEPOSIT PHOTOS
The founder of a real estate investment advisory and consulting firm based in Jersey City talks about how the state can encourage development of more affordable housing. Find out what he has to say here.
In addition to “building more than we could possibly support,” Otteau noted NIMBY pushback across the state has also dealt a blow to Industrial.
He also highlighted multifamily — where spending is up just 8% but starts have grown 20% (to $1.78 billion). “So, apartment buildings and mixed-use buildings with ground floor retail, upper floor apartments — that market is going to get very, very heated based upon those numbers,” Otteau projected, pointing to fourth round affordable housing obligations throughout the state.
“And the way they get built, is that for every one affordable housing unit that a town decides to allow to be built, the courts have said you should allow the developer to build four market rate housing units … because building affordable housing is not profitable,” he said.
Harkening back to the impacts of lower birth rates on labor, Otteau also noted fewer new adults could mean fewer renters. “And so we are, I believe in the process of overbuilding the apartment market.”
Touching on commercial’s modest 4% growth (representing $823 million), he attributes it to the “interest rate phenomena being upside down. That’s all going to change in the next six months.”
Over the next five years, planned future projects across New Jersey add up to $140 billion, according to the presentation. “Now some of those will never get across the finish line … Some of those will start in a year; some of those won’t start for five years.”
But the overall figure speaks to enormous local demand for construction services.
Breaking it down, nearly $118.5 billion of that work is in the northern part of the state, while the south represents about $22 billion. Otteau offered up Trenton as the approximate demarcation between the two regions.
“And so, as you are planning for the future,” he said, “you should be thinking — more business, significant growth, more demand, and how are you going to satisfy that?”
Inputs & outputs
Otteau’s presentation wrapped a pair of project profiles from both North and South Jersey, laying out the economic benefits of construction spending in the state.
He categorizes them into three tranches: direct, indirect and induced effects.
Direct effects represent immediate changes in the local economy from a project. That includes construction costs, job creation, wages and salaries generated and operational activity, as well as taxes. And as Otteau highlighted, there’s a lot of those:
There’s the taxes on the materials, there’s the taxes on the income, the salary and wages that’s paid to people working in the job. There are the taxes that are paid once a project is built and there’s permanent full-time employees living there; there are the taxes that get paid because as you build a project with permanent employment – even the temporary employment during construction – … the people that are working on the job site or working in the completed project are spending their money out into the economy — buying product, going to lunch, finding housing that’s close to where they live. And all of that is generating taxes. It is substantial.
Indirect effects stem from business-to-business transactions across the supply chain. He used a hotel as an example. Once built, money still needs to be spent with suppliers, which creates another wave of economic activity at that touchpoint. Similarly, if an apartment building is built it can positively affect the retail landscape from new residents seeking goods and services locally, Otteau said.
Induced effects come from household spending when workers use their earnings to stimulate the local economy.
Certain inputs determine these outputs, Otteau explained. The former includes:
- Project location — address, region, etc.
- Project type — warehouse, data center, office, apartment building, etc.
- Project costs — sited development and construction
- Operational employment at completion — number of employees
The results are highlighted in the number of construction jobs created; labor income (employee wages and benefits); local, state and federal tax revenues; and local and state GDP.
This kind of understanding can help professionals better advocate for their projects, Otteau explained.
“[W]hy your project should get funding, or why state policy makers should be pushing money in the direction of construction projects. Why a highway should be expanded, why a bridge should be repaired … It ends up being that the economic effects are greater than the cost of building the project,” he said.
Moving forward, the case study feature will appear as part of the quarterly MarketCAST report the Otteau Group provides for ACCNJ.
Case in point
In Long Branch, Otteau profiled a 150,000-sqauare-foot warehouse, providing insights into the impacts for such a project in both North and South Jersey.
In Montville, Morris County, the all-in cost of the project totaled $28.9 million. For the same size facility in West Deptford, Gloucester County, the figure was $25 million.
“A little less expensive, because things are less pricey in southern New Jersey,” he explained.
Including land, site development, construction and profit margin, the North Jersey building boasts a price point of $193 per square foot, while in the south it drops to $166 per square foot.
In summary:
- North Jersey impacts: 372 total jobs; nearly $35 million in labor income; $12.3 million in additional GDP contributions; and $9.5 million in tax revenues at the federal, state and county level
- South Jersey impacts: 361 total jobs; $24.7 million in labor income; $10.2 million in additional GDP contributions; and $7.9 million in tax revenues at the federal, state and county level
Both projects generate benefits totaling one and a half times their actual costs, Otteau said. “The construction bill doesn’t cost anything,” he noted. And in South Jersey, “It gives back more than it takes.”
By offering transparent data, the presentation highlighted how these kinds of details can help industry professionals when it comes to building proposals for tax incentives, accelerating zoning and funding approvals, demonstrating community value and informing strategic planning.
Construction spending is going to rise. We’ve already seen the rebound; lower interest rates will boost it even further.
– Jeffrey Otteau, Otteau Group managing partner and chief economist
Otteau said the likelihood of a recession is probably extremely slight, while noting the precarious nature of making predictions amid the Trump administration, “Because a sort of combative, chaotic approach to negotiations is his style. Not being critical. It’s how he chooses to do things.”
However, that style does have impacts on financial markets, which have a difficult time looking ahead under those circumstances.
Overall, though, “Construction spending is going to rise. We’ve already seen the rebound; lower interest rates will boost it even further,” Otteau said.
That push will help get projects underway, with emerging opportunities coming from ramped up infrastructure spending, new apartment projects and the next wave of Industrial product.
On the horizon, he noted emerging opportunities in data centers and refrigerated warehousing, adding “It’s going to be as big going forward as warehousing has been.”
Taking into account the benefits it produces, the sunny outlook for the local construction industry has much wider implications.
“I can tell you that there is no other industry that exists that creates these types of spillover effects into the larger economy,” Otteau told the packed room at the ACCNJ event. “The industry that you work in is the most critical element, well, perhaps the most critical element, certainly from a fiscal point of view.”
