The Jan. 28 Walker Webcast took place ahead of the January meeting of the Federal Reserve’s Federal Open Market Committee. Linneman Associates founding principal Peter Linneman, making his 24th quarterly appearance on the weekly podcast, correctly predicted that the FOMC would keep the federal funds rate at its current level, in line with market expectations. However, he anticipates the Fed enacting more rate cuts before 2026 is over, albeit not all at once.
“I would not be surprised at all if this year we get 75 to 100 basis points of cuts,” in part because President Trump is likely to appoint a couple of Fed officials—including a new chairman—who favor a more dovish approach to monetary policy. Linneman also pointed out that inflation net of shelter is 2.1%, in line with where it has been for the past 30 years aside from the pandemic.
Recent FOMC meetings have been marked by less-than-unanimous votes on the federal funds rate after years of unanimity, and Linneman sees that as a positive. “I view dissent as healthy,” Linneman told Walker & Dunlop CEO Willy Walker. “But I don’t think a new chairman walks in and says, ‘okay, let’s do 75 basis points in a month.’ Culturally, they’re not going to do that. They’re going to bleed out those rates over six months, seven months, eight months. So yes, a new chair will want to do that, but no, they won’t be able to do that.”
Speaking live from IREI’s VIP Americas Conference, Walker pointed out that macroeconomic indicators from the stock market to the unemployment rate suggest a healthy U.S. economy. “But commercial real estate writ large is suffering,” he said. “You’ve got office values down by 30% from pre-pandemic. You’ve got multifamily values down by 30% from pre-pandemic; you’ve got retail values on shopping centers down 20% since pre-pandemic and hospitality around the same.
“And the question here is, when do the macro drivers kick in to the point where some of these asset classes can start to see rent growth and value growth, and we start to get the next cycle in commercial real estate? It feels like we’re in no man’s land right now.”
Linneman noted that demand has been strong for multifamily and has even begun recovering in the office sector. “What has been the problem is too much supply,” he said. Oversupply tends to occur in “spurts” and it takes time to burn off. It’s why Linneman is currently bullish on office and retail: new construction that is well below trend in office, and almost none occurring in retail, aside from repositioning.
Although he disputed the perception that artificial intelligence is eliminating jobs (“We are not adding jobs, but we’re not losing jobs”), Linneman saw oversupply of the infrastructure underpinning AI as a problem—eventually. For the time being, though, “If you’re in the AI-related service provision, including data centers, you can’t lose for the next two or three years,” he said. “Why? Because so much money has already been committed that just getting that through the system is creating huge margins for everything related to it.”
The hour-long conversation also delved further into housing affordability, the macro economy and Linneman’s longstanding “canaries in a coal mine” rating system for determining the severity of headwinds to commercial real estate.
On-demand replays of the Jan. 28 Walker Webcast are available through the Walker Webcast channels on YouTube, Spotify and Apple. Subscribe to get invites, replays and articles for new Walker Webcast episodes every week.
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