The commercial real estate industry is urging caution and consideration of costs and capacity when it comes to New Jersey's 2024 Energy Master Plan update.
According to NAIOP New Jersey Chief Executive OfficerDan Kennedy, taking a stance in its position paper released July 11 allows the organization to be a part of the process in a meaningful way. It also adds context to the conversation, offering specific data points and projections for how the race to reach 100% electrification in 2035 will impact the sector.
At the heart of the argument, NAIOP NJ asserts the Energy Master Plan relies on "unrealistic timelines" and "mandates for unproven technologies" that it says will shock the economy and ultimately prove counterproductive to the outline's stated goals. While commending its intent, NAIOP characterizes the current plan as "neither feasible nor realistic."
“So we have a position paper here that’s based on our projected reality of what things actually cost for commercial real estate," Kennedy explained to NJBIZ. "If an electrification mandate were to be thrust upon New Jersey commercial real estate industry we now have some statistics to say, 'what would that actually look like?' Instead of just talking about ... and being opposed to it, we can have an adult conversation about what the impact is.”
Big business
NAIOP NJ represents 800 members and approximately 300 member companies. That constituency owns and invests in 426 million square feet of office space, 634 million square feet of retail space and nearly 1.9 billion square feet of warehouse area.
According to the organization, the state's commercial real estate sector contributed $14.3 billion to New Jersey's gross domestic product in 2023, along with generating $5.2 billion in wages and salaries. The organization also attributed 79,000 created jobs to the industry.
Last February, Gov. Phil Murphy accelerated a statewide goal to reach 100% renewable energy from 2050 to 2035. The Energy Policy position paper's publication comes on the heels of the close to the
public comment period for the 2024 EMP update .
The paper identifies two priorities ensuring reliable access to power and supporting solutions for commercial buildings. It also lays out a host of recommendations in pursuit of each.
We've got the power?
Priority No. 1 is ensuring reliable access to energy. According to NAIOP NJ, the 2035 mandate could jeopardize this already precarious position.
Kennedy pointed out that many of the sectors the current administration has targeted data centers, FinTech, AI will only require more energy. And that New Jersey is not alone in trying to attract these kinds of companies.
"We have the buildings, we have the infrastructure [e.g. road, labor], what we don't have is the energy," Kennedy said, adding that restricting the choice to solely electric power makes it harder to compete with other states. And as he pointed out: “No one’s forcing any commercial real estate investor to do it in New Jersey. So if the mandates are here and the rates are hiked, it becomes less likely that investments are made in a state like New Jersey."
To help alleviate costs and concerns around reliability, NAIOP recommends looking beyond just electricity.
"Which is why we kind of talk about pilot demonstrations, hybrid heating network, geothermal, microgrids, fuel cells. There's a lot of opportunities out there to accomplish these efficiencies, accomplish decarbonization without just saying we're going to go straight to electrification," Kennedy explained. "We kind of want an all options on the table approach. [There are a] tremendous amount of opportunities that are coming to the market that are being tested. And commercial real estate is a great laboratory for those options."
He added that that deficit in available energy is also an example of "where tax credits only take you so far. You could have all the tax credits you want, but if you don't have the energy for the day-to-day operations to supply, you've got nothing."
Beyond reliability, NAIOP NJ also called for reasonably priced power.
High risk
Something missing from the mandate as laid out currently, Kennedy maintained, is consideration for the cost of efficiency improvements to adhere to the plan. The alarms sound in particular for the state's already struggling office spaces. Kennedy pointed to the necessary amenity investments the sector is already struggling to make to attract and retain tenants and how they diverge from the priorities the plan would dictate.
"[T]he commercial real estate industry is trying to accommodate improvements in existing buildings that the tenants are looking for," Kennedy said. "Tenants are asking for those interior improvements, they're asking for perhaps some charging stations for EVs. And those are the things that the commercial real estate industry is embracing fully."
According to the paper, depending on office building HVAC and lighting systems configurations, a total reliance on electric energy will produce onerous building costs. Projected capital expenditures range from $6.23-$14.64 per office square foot, NAIOP NJ said.
Kennedy also highlighted that some parts of the state generally northwestern and South Jersey just don't have the capacity to support the mandate.
At stake is a $938 million reduction in new commercial building development, according to the paper. Outside the industry, NAIOP projects that would result in a $2.1 billion reduction in New Jersey GDP along with reduced wages and salaries (more than $750 million lost per year) and an estimated 11,000 jobs lost.
Too soon
One of the main issues NAIOP engages with is the 2035 electrification deadline. To set up any plan for success, the organization is calling for more time to prepare accordingly and lay the proper groundwork.
"What we think should be done now to set us up for a transition, really investigating the feasibility focusing on
improvements to the grid , really understanding what the impacts would be to the cost of electrification," Kennedy said, immediately adding, "And it's not never. It's just 2035 is too soon based on the infrastructure we have in this state and the electric options we have in this state currently."
He said while other organizations might oppose certain kinds of renewable energy generation, NAIOP NJ is openminded.
"We think that we're at all options on the table. So, as wind is coming into play, that just being part of the mix, but it's not something we can rely on yet, because nothing's been built."
In contrast to a set, strict timeline, Kennedy and NAIOP NJ suggest an "if, then" approach.
More tools
By way of recommendations, NAIOP encourages the production of a feasibility assessment for the 2035 electrification mandate. The organization pointed to the significant financial and logistical hurdles developers and electric utility companies face under the requirement.
NAIOP also suggests that incentives for both new construction as well as existing buildings could help to encourage the industry to pursue clean energy investments. Additionally, the organization pointed to continued support for the state's successful community solar initiative.
The paper itself is also a tool. It marks a change for NAIOP NJ from taking more of a reactive position when it comes to policymaking to a proactive one.
Kennedy referenced NAIOP NJ's current engagement with the state Department of Environmental Protection. He hopes the kind of back and forth the sector has with that agency will translate to other areas, such as energy.
"Part of this is actually getting ourselves established to provide that service, that member service, because we know how important advocacy is to our members. We believe that we do a pretty darn good job on that side. This is just another toolbox. We need to create another kind of advocacy that we need to do better on. ... It's really setting ourselves up so NAIOP could then provide that kind of level of detail," he explained.
Copyright © 2024 BridgeTower Media. All Rights Reserved.
Most Popular
Comments / 0