Industry leaders across real estate, health care and development say tariffs and rising power costs are emerging as two of the most significant challenges facing New Jersey’s construction sector, according to insights shared during NJBIZ’s Construction & Development Panel Discussion on Dec. 16.
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Moderated by NJBIZ Editor Jeffrey Kanige, the 90-minute virtual roundtable brought together Michael Barone, project manager for Rockefeller Group’s design and construction team; Andrew Camelotto, director of real property at Gibbons PC; and Jose Lozano, executive vice president and chief growth officer at Hackensack Meridian Health. Panelists discussed how trade policy uncertainty, infrastructure limitations and shifting financing conditions are influencing project feasibility and long-term planning.
Barone said industrial developers have been closely tracking the effects of tariffs, particularly because warehouse and logistics projects offer a clear baseline for construction costs.
“I’ll come at this from an industrial development experience because frankly the projects are so copy and paste that you kind of get a really good sense of what a warehouse should cost and you get really good price trends over the years,” Barone said. “When tariffs dropped back in April, there was a lot of uncertainty in the market … There was a wait-and-see mentality around it because, as we know, it seems like every few weeks or at least months, tariffs change and suppliers are able to work around certain restrictions by finding different routes to import products.”
While material costs for industrial construction have increased about 4% this year, Barone noted that a slowdown in new construction starts has helped soften the immediate impact. However, he cautioned that as activity rebounds, accumulated pressures from tariffs, higher steel and aluminum prices, rising electrical and MEP costs, and inflation could become more pronounced.
Despite cost pressures, Lozano said health care construction continues to expand, driven by shifts in how care is delivered.
“Health care is not slowing down in any shape or form. And it’s not just Hackensack Meridian Health. You’re seeing this across the country as much more health care is being done outside the four walls of a hospital, we’re seeing a burst of ambulatory care centers,” Lozano said.
He added that while suggesting tariffs have had less impact on core construction work, globally sourced medical equipment, technology and furnishings have been affected by trade policy uncertainty, prompting providers to take a more cautious budgeting approach.
Camelotto said tariff-related uncertainty has pushed more risk down the construction chain, affecting lenders, borrowers, contractors and subcontractors alike.
“I would also say the uncertainty generally seems to have the effect of making construction and development more challenging because of the trying to predict the end user at the end of your construction cycle,” Camelotto explained. “So, I think that’s another area where it’s become more challenging in that you have a lot of companies that they’re not quite as committal as they might otherwise have been if they know where things are going to be in the next three to five years.”
Rising energy costs and power availability emerged as a major concern, particularly for health care and industrial facilities that operate around the clock.
“We run seven days a week, 24 hours a day. Unfortunately, we do not get the luxury of closing down for the holidays,” Lozano said. “And so what we at Hackensack Meridian Health did a couple of years ago, we significantly invested on sort of our own energy master plan and we started the process of investing in solar panels and battery power storage to be able to control our peak times and then moving us into off peak times to try to minimize our overall costs.”
HMH’s annual energy costs can exceed $60 million, according to Lozano, underscoring why large institutions are investing in alternative energy strategies.
Barone said power availability is becoming a defining risk for warehouse and industrial projects, especially in southern New Jersey, where infrastructure constraints can cause lengthy delays.
“New Jersey’s attractiveness as a data center market is purely based on proximity. It is not a cheap power market and I believe that the majority of the hyperscalers you hear about are going to be looking in Pennsylvania and other states in the Northeast and Midwest for the larger facilities,” he said. “And I don’t see a way that without government assistance that those costs can be competitive with the current limitations on the grid.”
Barone added that developers are increasingly exploring onsite generation options that would have been unlikely just a few years ago.
“Pricing for feasibility studies has increased. I know that a lot of people at the state level and at the utility companies themselves are working on this very real demand supply imbalance and we are just along for the ride at this point,” he said. “I will say that we’ve gone so far as to explore onsite generation from gas turbines and solar to battery storage that we would never have looked at three years ago just to support lease up on these sites.”
Despite growing interest in onsite power solutions, panelists agreed that grid reliability remains essential, particularly for mission-critical uses like health care.
“I think it’s going to become the No. 1 issue in the next several years for construction development in New Jersey,” Camelotto said.
“I think the exploration of both onsite and offsite in close proximity, either private power or whatever it would be, is something that I’d like to see the state explore in earnest … there just needs to be more of that collaborative effort, I think both in the regulatory side and the practical solutions type front to try to address the issue.”
As New Jersey prepares for a new gubernatorial administration, panelists said energy diversification and infrastructure investment will likely play a central role in shaping the state’s construction and development outlook in the years ahead.
Originally reported by Kimberly Redmond in NJBIZ.
