January 30, 2025 • 41 mins
From a new presidential administration to surging demand for data centers, 2025 is shaping up to be a pivotal year. In this episode, we sit down with James Bohnaker, Senior Economist at Cushman & Wakefield, for an economic outlook with insightful forecasting for the year ahead. James unpacks key factors—including potential tax changes, the economic ripple effects of deregulation, and shifts in immigration—offering expert insights into what lies ahead. Tune in for a nuanced look at the opportunities and risks shaping growth in 2025, across a rapidly evolving market.
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Episode Transcript
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Speaker 1 (00:04):
Welcome to Peaks and Portfolios presented by PEG
Companies, your go-to podcastfor all things commercial real
estate investment.
I'm Rachel oh, and togetherwe're diving into current events
, trends, issues andopportunities impacting the CRE
investment space, fromdissecting the latest market
moves to sharing insights ontoday's commercial real estate
(00:25):
landscape.
It's time to maximizeportfolios here in the peaks of
the Mountain West and beyond.
Speaker 2 (00:35):
Okay, everyone, welcome, welcome to 2025.
I cannot believe we're finallyhere.
I feel like 2024 was a longyear a great year, but a long
year, and so, anyway, we're sograteful for you all to join us
here on Peaks and Portfolios byPeg Companies.
I think it's very apropos thatwe're kicking off 2025 with
(00:57):
James Boniker, who, for ourlisteners, you may recall, he
was our first guest last year aswell, so we're so grateful that
he was able to join us, I guesskind of fresh off of
marriage-ish maybe, maybe not,but welcome, james.
How are you?
Speaker 3 (01:15):
I'm doing well, so glad to be back with you in 2025
.
It was a long year last year,but I also feel like it went by
really quick and we're bothnewlyweds, so we had a lot going
on in our lives, right.
Speaker 2 (01:27):
Yes, yes, james got married in August and I got
married in November, so we werejust trading notes.
So 2024 was a good year forsure.
I mean, I don't know if allinvestors may think that same
thing, but at least it was goodfor the two of us.
Okay, just a little bit aboutJames.
He is a senior economist withCushman and Wakefield in their
(01:50):
global think tank and he is just.
You know, we really enjoyed ourfirst conversation.
He shared with us a little bitabout the economy and some
predictions, and so we'rebringing him back as we, as we
look into 2025, maybe a littlebit of a recap on 2024.
But you know, he has a uniqueperspective and that's all he
(02:11):
does is think about this, so wereally want to tap into him and
and get some more insights.
So, hey, james, I'm going tojust throw a little thing at you
.
We I heard a lot about, youknow, coming off of COVID and
whatnot.
People talked about survivinguntil 2025.
And I'm just curious is it asurvive until 2025 mentality
(02:32):
still, or is it a thrive in 2025?
What are your thoughts?
Speaker 3 (02:36):
I think it's a little bit of both, depending on your
perspective, depending on whatasset class you're exposed to,
whether you're on the investorside or the leasing side.
I think that very clearly fromwhere I sit and really across
the board for commercial realestate, I think the optimism has
really started building overthe last few months.
I think it really started withthat first Fed rate cut that we
(03:00):
got a few months ago, that big50 basis points and a bit of a
false start maybe, because nowI'm sure we'll get into that
with the outlook for goingforward, but I think that was a
crucial moment.
I think that investor sentimentreally across the board, like I
mentioned, has been positiveand we're seeing more
(03:21):
transactions, you know, not justbeing conceptualized but being
acted on, which is, you know,obviously, what we're all here
for.
So you know sentiment isdefinitely positive and even in
some of the sectors ofcommercial real estate that have
been struggling, things arestarting to turn.
So you know we're prettypositive on the outlook for the
year ahead.
Speaker 2 (03:41):
Yeah, I would agree.
You know I went to SanFrancisco.
My new home is now in the BayArea.
We went there for Christmas andI don't know if you've been
down to Union Square lately, butit was hustling and bustling
and I think the last time I hadbeen there I kind of feared for
my life and it was clean andthere were people you know
(04:02):
running about, so I felt veryhopeful.
I feel like that could be maybea little bit of an indicator of
what's to come.
Speaker 3 (04:09):
Well, that's great.
Sorry, that's great to hear.
I know that I have not been outthere, but you know reading the
paper and what you heareveryone's got their own story
right about how bad things were.
So I've heard similar latelyabout how things are turning
around and people are out andabout and shopping and going to
work.
Speaker 2 (04:26):
So yeah that's great.
Speaker 3 (04:27):
That's great.
Speaker 2 (04:27):
Yeah, no, no, it was.
Even the highways were busy,which again we didn't see much
of that either.
I think Mondays and Wednesdayswere the days that sorry.
In the past, when I go on aMonday or a Friday, the roads
were really open and it wasactually more busy, which just
(04:48):
means more people, I think, areactually going into the office
than before.
So again, my little tinyexperience, but I feel super
hopeful and I really feel likethat's kind of what we're seeing
.
But kind of piggybacking off ofthat, let's talk about some of
the sectors in real estate thathave been most hard hit and
where you folks are seeingthings.
(05:09):
So let's talk office.
I mean, san Francisco is allabout office.
Just curious your thoughts orwhat you guys are seeing in
terms of vacancies, lease rates.
I mean, is it more of the same?
What are we looking at?
Speaker 3 (05:22):
No, so we've definitely started to see that
more leasing is taking place.
I think that you know, a fewthings happened over the
previous few years, right,obviously, the big disruptor
right is hybrid work, and youknow, jury's still out on kind
of where that lands.
Everyone wants to know.
Are we at a new equilibrium?
I think that you'll see a moregradual evolution of how hybrid
(05:47):
work fits into total workplacestrategy, and that's something
that obviously is a big factorand something that we watch very
closely.
But even within that kind ofsegment, it's different for
different companies, dependingon your size, depending on your
sector, depending ongeographically.
So it's really not a black andwhite question.
(06:08):
I think there's a lot of nuancethere and it's something that's
just going to be evolving.
But I think the thing that youknow a lot of people forget,
right is I mean, bay Area is agreat example.
Right, there's been a lot oftech layoffs over the past few
years, which is a little bitironic given all the hype around
(06:28):
generative AI and a lot ofthese new technologies, right,
but workforce counts have beendown in that sector.
The finance sector hasn't beenadding a lot of jobs, and even
other office using sectorshaven't as well.
And so when you think aboutkind of how we used to think
about the office sector, it wasall about jobs, jobs, jobs,
right.
And so you know that's still areally big factor given all the
(06:50):
economic uncertainty that's beenout there the past couple years
.
And so you know, I think, withyou know the economy holding up
strong, you know a newadministration coming in giving
some optimism to some sectors, Ithink that that's been a
positive as well, where we arestarting to see that firms are
acting on leasing decisions moreproactively, I should say.
(07:13):
I mean Manhattan, for example,had their best leasing quarter
following the pandemic in thefourth quarter of 2024.
So a lot of people, new Yorkersat least, like to say that as
New York goes, so does the restof the country, and so I think
that's a very positiveindication for where things are
headed, that you know the bottomis here and things will start
(07:35):
to turn around.
Speaker 2 (07:36):
Yeah, yeah, oh my gosh, please, please, let the
bottom be in our rear viewmirror and everything up and
onward.
Let's talk a little bit aboutthat.
Until you mentioned Manhattanas kind of a leading indicator
for the rest of the country.
You know, what we tend to seeis that there's more vacancies
in older properties as those whoare now leasing they're moving
(07:59):
towards higher quality, newerbuilds.
Does that continue to holdthroughout the country?
Again, that's in ourperspective, kind of from our
Mountain West markets, but I'mjust curious if that's across
the board as well.
Speaker 3 (08:14):
Absolutely.
That's one thing that's veryconsistent.
No matter which market you lookin across the United States is
that flight to quality is a veryreal thing.
Interesting stat if you justkind of split up the office
market nationally and look atyou know a third, top third, of
the buildings based on their thelowest vacancy rate.
(08:36):
They're essentially fullyleased and you know a lot of the
characteristics that they shareare what you might expect,
right.
They have great amenities.
Of the characteristics thatthey share are what you might
expect, right.
They have great amenities.
They're in prime submarkets andeven within the submarket level
.
The best blocks are the bestkind of neighborhoods and so you
know that's absolutely a thingthat's going to continue.
The issue is or not really anissue, but a feature of that is
(09:01):
that we're running out of thatsort of space, right.
If you think about theconstruction cycle, nobody's
been lending on new officeconstruction for a couple years
now and so we're not buildingmore of it and what's there is
pretty much fully leased.
And so I think the big questionfor 2025 is what happens to kind
of that second, third, fourthtier of across the quality
(09:23):
spectrum, right and right andfirms.
If they're in expansion mode,they're going to have to go
somewhere, but they're going tobe very selective, and so I
think really, what we're goingto start to see materialize is
landlords who have invested inmaking the proper renovations
and doing whatever they canreally to entice tenants.
They're going to be the winnersof the next few years, right?
Speaker 2 (09:44):
Yeah, I tend to see that in our market as well, and
again, I spent more time in theBay Area, and so we're starting
to see that, and I think that'sagain a strong indicator of
resuming work, more of a hybridapproach as opposed to staying
all at home.
And then again we keep hearingabout all this AI and this
(10:04):
digital economy and cloudcomputing and all of that.
So let's just talk, let's kindof move into that.
Our office used to be the realestate that everyone was sort of
clamoring for.
I hear all about data centers.
Any updates or thoughts on datacenters as we enter into this
new year?
Speaker 3 (10:21):
Yeah, it's going to continue to be hot.
The demand is just insane outthere for data centers and just
the ability to have that cloudcomputing.
Every big tech company islooking for it, and even if
you're not a tech company, youneed that cloud space to store
your data and to do theanalytics that virtually every
(10:43):
large company and even smallercompanies are investing in, and
so the demand is not thequestion.
That's going to continue to goon an upward trajectory.
I think the supply is reallythe limitation now, and
specifically power supply too.
That's a big issue right wherethere's hotspots, where they've
got the power to support thattype of computing, and so I
(11:09):
think you'll start to see moreinvestment around that
infrastructure.
That will help supply over time, but really for the foreseeable
future, I think it's going tobe a very, very tight market to
get into, and you'll see rentscontinue to go much higher.
Speaker 2 (11:22):
Yeah, no, I am, you know I didn't.
I'm not so familiar withnuclear power, right, but it
just seems like our grid isovertaxed, as is.
There's only so much more thatit can handle, and we're going
to need to find alternativepower sources.
So it'll be interesting to see.
At least that's myunderstanding.
With data centers, the bigthing is is where do you, how do
(11:50):
you support the data centers?
Right, where is the powersource?
And if our grid is maxed out,then where do you go?
And solar can only do so muchand there's only so much wind,
apparently so um so it does seemlike we're gonna have to figure
that out.
So, to your point,infrastructure, investing in all
that, that'll be reallyinteresting.
Um, you know, as we, we, wekind of hit on it at the very
beginning too, it is.
It's a new administration, youknow.
(12:11):
The election results are, thatis now behind us and we now have
a new presidency coming in.
How do you think that's goingto affect the next four years?
Speaker 3 (12:21):
It'll be interesting to watch.
I think you know, first of all,the fact that it was a pretty
decisive presidential result.
That's really the first bighurdle, because what nobody
wants is kind of that, you know,weeks or months long waiting
period of Supreme Court trialsand all that kind of stuff where
nobody knows what's reallygoing on, because that just
stalls all types of investmentout.
(12:43):
So, you know, fortunate for theeconomy, for commercial real
estate, that was a decisiveresult.
You know, obviously, theoptimism initially, I think, if
you look at the stock marketanyway, I think a lot of that
really stems from a few thingsin that, you know, tax policy is
likely to be more favorable,deregulation in certain sectors
(13:05):
might create more M&A activityand just less regulation is just
generally better for manyindustries, and so I think
there's some optimism behindthat.
I will say that it's not allgood news, at least from you
know, kind of an objectiveeconomist perspective, right,
because I think the two bigthings that are going to be
(13:26):
challenges right are the tariffs, which at this point it seems
very likely that there's goingto be more tariffs on products
coming into the United States,which raises costs for those
importing them and ultimatelyaffects consumer prices too.
So that's the one big thing.
(13:47):
At this point there's moreunknowns than knowns the
magnitude, the geographicalscope.
We just don't have muchinformation on that.
So that'll be something toreally carefully watch, with
implications on industrialretail especially.
Implications on industrialretail especially.
(14:09):
Second big thing is immigrationand the potential to possibly
have some scope of deportationof people who are in the United
States, which is a really bigfactor.
Because if you look at over thepast two years, two, three
years or so, really the primarysource of labor force growth has
been from foreign-born workers.
So you know that's partiallylegal, partially illegal
(14:29):
immigration, but the fact of thematter is that's what's been
supporting the labor forcegrowth that we've gotten and
that obviously drives economicactivity.
So that'll be interesting towatch.
You know, I think that thatcould have implications on
inflation and just hiringstrategies and the ability for
companies to expand.
(14:50):
So those are kind of the twocaution points that I'll be
watching.
But on the flip side, as Imentioned, there is some
optimism around.
You know tax policy,deregulation.
Speaker 2 (15:01):
Yeah, yeah.
No, there's no perfect rightsolution, there's no perfect
administration per se.
Speaker 3 (15:07):
But yeah, and I, I I will add you know we we've done
some studies on this.
If you look back over time andwhether you look at a commercial
real estate investmenttransaction volume, or whether
you look at leasing activity, uhversus in, you versus in
Republican versus Democratadministrations, there's almost
no correlation either way.
(15:28):
Right?
The underlying economics arewhat drive our industry and so I
think on the margin there mightbe pros and cons depending on
where you sit, but for themarket as a whole not really
going to influence things allthat much.
Speaker 2 (15:45):
Yeah, interesting.
Ok, I look and see, I feel likeit's been in kind of a again,
that whole sentiment of, likeyou know, stay alive until 2025,
which I think it's.
Just, you know, people try tofind words that rhyme and
whatnot.
And then when we think aboutthis thriving in 2025, what are
the sectors then do you thinkare poised for most growth in
(16:07):
2025?
Speaker 3 (16:09):
Well, you know data centers, as we mentioned, a lot
of these alternate, you knowwhat we'd call alternative
assets.
They're not such a nicheproduct anymore, right, because
there's been so muchinstitutional and private
capital poured into them.
But, you know, I think, datacenters being one, I think of
the you know the core, the bigones, right?
I think that really, really,across the board, I mean,
(16:32):
multifamily has had a tremendousyear in 2024.
And you know if anyone outthere has been in the market
looking for to buy a home lately, it's tough out there.
Inventory is very, very low,there's a massive housing
shortage, even in multifamilyspace, and so I think that's
(16:52):
really going to be a strongpoint for 2025, given especially
if the economy holds up prettywell, like we expect it to, so
multifamily, I think, willcontinue to do really well.
I think that the industrialmarket is pretty interesting
because over the past few years,yes, demand has fallen off
(17:12):
somewhat, given just some of theastronomical rent increases
that we saw over previous years,but it's really been more of a
supply side story where we'veseen vacancy go from around 3
percent nationally to about 6.5percent.
So it's a pretty big job, but6.5 percent isn't isn't all that
bad and we're still seeing thatthere's a lot of demand out
(17:35):
there for industrial space ascompanies just fill out their
supply chains and e-commercecontinues to grow.
So multifamily industrial, Ithink really positive on.
And then I work very closelywith our retail team and I know
that I think people are startingto catch on that retail is
actually a pretty good sector toinvest in.
(17:56):
We've seen a pretty good amountof activity in the shopping
center and even in the mallspace, you know, for
redevelopment projects andthings like that.
So, and retail, contrary tomany of the other asset types,
you know, haven't been buildingany more of that really for the
past decade not a lot of itanyway.
So that's come back verystrongly and even in office not
(18:21):
to try to sound like the ultraoptimist, but really I think
there is a positive story there.
So you know, 2025 is lookingpretty good across most of the
sectors.
Speaker 2 (18:33):
Yeah, no, I think that we're seeing that as well,
and you know one of the areasthat we are also quite.
I mean we're not in datacenters, we're not in industrial
.
Really, I mean it's reallymultifamily.
You know a sliver of office.
But there is a sector that weare quite invested in and that's
hospitality, but notfull-service hospitality and
(18:56):
more that select service,limited service hospitality.
And just curious if that comesacross your radar at all.
Speaker 3 (19:03):
It does and it shows up really in a lot of mixed use.
And even I think one thing isinteresting, just to go back to
office for a second.
But if you think about thesemodern offices that are doing
really well and attractingtenants at high rates becoming
more of a hospitality vibe,right, you've got excellent food
(19:23):
and beverage options, you'vegot concierge services, you've
got interesting fitness ideas inthere like golf simulators and
things.
So I think we're just seeinghospitality in general, the
broad sense of hospitality,enter into more types of
properties and that's just afunction of where people are
(19:44):
spending their time and it tiesback a little bit to this hybrid
workforce where maybe peopleare getting some of their
leisure, entertainment and theirnecessities in the middle of
the day and at different timesand in different places.
So I think you know hospitalityin general is something that's
evolving and I think that youknow we're seeing some
(20:04):
interesting ideas definitelycatch on over the last couple of
years.
Speaker 2 (20:07):
Yeah, no, I love that you say that we actually again
the two primary food groups thatwe service are multifamily and
hospitality.
And we are now seeing asmultifamily becomes more
competitive right Like there'srenters out there and you know,
come to our building versus youknow the one down the street and
(20:29):
we are finding that because westraddle the two sectors, we're
starting to kind of mix the two,meaning offering more
hospitality-esque type offeringsat our multifamily and there's
going to be more to come.
But yeah, no, we're.
You know even to the extentthat, like you know, you have
one global brand, a renter couldbe in several different markets
(20:51):
and you know you don'tnecessarily have to sign a new
lease each time.
Now that you migrate frommarket to market, you know you
could be with the samemultifamily brand, kind of like
a hotel like Marriott.
You know loyalty or Hyattloyalty, but you know, move from
market to market with no, youknow, lease renewal you could
just transfer.
And then you know, to theextent that there are food and
(21:15):
beverage offerings, you know, inthe common space areas, and
then all the amenities that webuild out.
Like it's interesting, we'restarting to morph the two a bit
as we are trying to be morecompetitive and really stand out
in the market.
Speaker 3 (21:30):
No, that's spot on.
That's great to hear, and Ithink we absolutely see that
trend continue.
Actually, somewhat poignantly,I'm in my apartment building
here in Boston and I'm sittingin the conference room, and if
they didn't have the conferenceroom here, I would have to go
into the office every day.
God forbid.
(21:51):
Don't tell the office peoplethat I know, I know, but it's
just so nice to to have thatsort of uh, mix of you know,
think about just how peoplespend their day and all the
things they do over the courseof that day.
To have them all kind ofintertwined in this seamless way
, I think, is really the futureof where we're going here.
Speaker 2 (22:11):
Yeah, yeah, no.
I think it's interesting thatyou mentioned that.
Um, you know there's we talkabout multifamily a lot.
It's, I think, the most, one ofthe more resilient investment
classes out there, at least interms of commercial real estate.
And something that we've alsobeen dabbling in in the recent
years is this build for rentright.
So on the single family rentalside, whether it be townhomes or
, you know, freestanding, youknow homes if you will, with,
(22:35):
you know freestanding, you knowhomes, if you will, with little
gardens and you know unattachedwalls, so horizontal living.
But costs have been, you knowcosts and interest rates are
where they are.
So development has definitelyslowed.
How does the BFR single familyrental portion of multifamily,
how does that come up on yourradar?
What have you guys been seeingthere?
Speaker 3 (22:52):
Yeah, I think it's extremely attractive because if
you look at the situation thatwe're in today, right, mortgage
rates are still about 7%.
Again, very, very limitedinventory out there, and if you
think about the potential buyersthat are out there, it's
exactly the type of people youknow, maybe who just got married
(23:12):
and are thinking about havingkids, who don't want to be in an
apartment building, that's, youknow, they want kind of that
family aspect, the communityaspect, and I think that
built-to-rent single-familyrental fits that bill exactly
right.
Where the housing crisis isn'tgoing to be resolved overnight,
(23:35):
hopefully there's some policiesthat come in place down the line
.
But you know, in the meantime,I think that, yeah, that's just
a very attractive from a demandperspective, given how little
supply there is out there rightnow.
Speaker 2 (23:48):
Yeah, yeah, and we're definitely part of that.
We've kicked off a couple ofdevelopment projects, but I'll
be honest, it's been difficultto pencil ground-up development
still, and it's really just twofactors right cost and interest
rates.
We're seeing a little bit of areprieve, but not enough to make
a dent.
So then you switchedacquisitions.
(24:08):
We've got some dry powder tospend, but then you know no one
is selling at cap rates thatmake sense either.
So it is interesting how it justcontinues to feed off of each
other.
I just don't know.
I'm just I'm wondering wherethings will head as demand
continues to rise, supplyremains constrained.
Speaker 3 (24:29):
Absolutely.
I mean from a developmentaspect.
It's still pretty tough outthere, regardless of how great
your narrative is, you know justbecause of where interest rates
are, so you know that's likelyto get better.
I think that you know we'veseen interest rates come down a
little bit, maybe not as much aswe all would have hoped by now,
(24:50):
but still moving in thepositive direction.
And you know, I think as longas the fundamentals you know
income, rents continue to holdup and improve which we believe
they will, right, I think it'sgoing to get easier.
We have started to hear over thelast few months that you know,
lending community especially alot of the banks have become a
(25:14):
little more eager to get moneyout the door, and so that's a
positive.
It's going to be a bit of thebanks have become a little more
eager to get money out the door,and so that's a positive.
It's going to be a bit of agradual process.
I don't think we see this, youknow, massive development wave
coming anytime soon.
So you know you just got to,like you said, just really have
something to pencils and youknow, wait for those interest
rates to come down and hopefullythings will pick up steam a
(25:34):
little bit.
Speaker 2 (25:39):
Yeah, you know, I know you mentioned that deal
flow has picked up, transactionshave picked up.
You know it's the start of theyear.
There's a lot of the bigconferences kick off in January
and I think you know my team isgoing to all of them across the
country in the different sectors, and we're, I know one of the
big things is the transactionvolume going to continue to
uptick.
Is it really like, are wereally going to see more deal
flow and, you know, moreexchanges of hands and monies
(26:03):
and stuff?
And so I'm just curious youknow what you're seeing there,
what you're thinking about that,because we would love to
acquire and it's still notnecessarily a slam dunk.
Speaker 3 (26:18):
Yeah, it's again.
It's been a bit more of agradual process than I think a
lot of people expected, but it'sreally something that you know.
Internally at Cushman Wakefieldwe've been advising and
advising our clients is that youknow interest rates aren't
going back to, you know, 3%overnight, and you know you
really just have to be strategicand you know act decisively
when the opportunity presentsitself.
(26:40):
So, but you know, moregenerally, yes, I do think we'll
start to see transaction volumepick up.
It's not going to be thisV-shaped recovery though that I
think you know we'd like to see.
So it's really just a matter ofpicking your spots and I think
that ultimately, by the secondhalf of of this year, that we'll
start to see some real, realtraction along those fronts,
(27:04):
just even though interest ratesaren't coming down as quickly as
we'd like.
You know there's just a lot offolks that have been on the
sideline for so long now thatyou know.
I think the realization,ironically, that interest rates
are going to be higher forlonger, it's like all right.
Well, we can't bet on that.
You know this is the newreality and so if we want to
(27:24):
make our investments, we mighthave to capitulate a little bit
on where we think prices are,whether you're a seller or a
buyer, and so I do think we'llstart to see things pick up, but
you know, not necessarilybecause interest rates are going
to go a lot lower.
Speaker 2 (27:39):
Yeah, yeah.
Well, I mean, if you look atthe treasury yield and where
that remains and the ability inwhich to like how much more, how
much risk our investors aregoing to take, I think that'll
continue to evolve, as youmentioned.
You know what they always sayreal estate's a long, long play
anyway.
So Absolutely Yep and you knowwhat they always say real
estate's a long long play anyway.
So absolutely OK.
So let's then shift a littlebit.
(28:01):
Are there specific regions inthe US or globally for that
matter that you think mayoutperform in 2025?
Speaker 3 (28:08):
Yeah, I think, again, it depends on the property
sector a little bit.
But just from, you know, let'sjust talk about, you know, maybe
multifamily just as an example.
I think that you know what wesaw in 2024 was really this
shift back away from the Southand the West and specifically a
lot of those hot Sunbelt marketswhere construction was just
(28:31):
going up faster than you couldwatch it.
We really saw that a lot ofMidwest and Northeast markets,
secondary markets that have somecost advantages to your bigger
cities, really started tooutperform and I do think we see
more of that in 2025.
And I think economically thatreally ties in well.
That's why I use multifamily asan example, because if you
(28:53):
think about the drivers there,you know it's about jobs, it's
about migration and I think thatreally reflects what we see
regionally, where you know someof your smaller secondary
markets.
You know one thing is that overthe course of the pandemic and
even following, people hadstarted to kind of shift out to
(29:14):
smaller cities and even withincities, to the suburbs, and we
started to see that that'sslowed down a little bit as it
relates to cities.
As you mentioned, san Franciscolooks like maybe it's coming
back a little bit, and so Ithink that's a great example
where, in addition to kind ofthese smaller Midwest markets
(29:35):
within a lot of gateway cities,I think areas that have been
disadvantaged because of returnto office and because of some of
those earlier migration trendsI think we start to see things
pick up there as well.
So that's exciting.
We're seeing more interest frompublic leaders right in
(29:57):
revitalizing their cities andgetting people there, whether it
be to live, to work or to play,and so I think that you know,
over the course of the nextcouple of years, we'll start to
see some really strong activityin downtown areas.
Speaker 2 (30:11):
Yeah, yeah, no again.
One little shopping trip.
I don't know if that is thebest gauge of return to
everything, but it was superencouraging.
The last time I had been thereit was really disappointing.
So it was nice to see at leasta ton of shopping and, you know,
very clean streets and just alot of robust activity and
(30:33):
clogged highways.
It was just a little bit.
It took a minute to get intotown, which was great, I feel
like it was.
Speaker 3 (30:38):
Traffic is great, right, yeah.
Speaker 2 (30:39):
Traffic is a good indicator.
I mean, something's happening,and I think it's the first time
I was like, oh wow, I'm actuallyhappy to see traffic.
So okay, so curious.
Then, what are some headwindsor some of the bigger risks that
you see as we go into?
I mean, I know that we try tobe optimistic and as an
economist, you have to see bothsides and I think you're
probably trained to be morepessimistic, if anything.
(31:01):
Where are some headwinds thatyou potentially see that could
be problematic as we head intothe new year?
Speaker 3 (31:09):
Yeah, I think that, on a macro sense, some of the
uncertainty that we talked aboutaround tariffs and immigration
policy I think that those bothare going to be a factor,
whether or not it falls more onthe corporate side or the
consumer side.
Either way, I think that thereare going to be some challenges
(31:32):
there and it's not going toaffect everyone equally.
I think that you're seeingcompanies really ramp up their
lobbyist pool and try toposition themselves well for
whatever policies come down thepipe.
So I think those are going tobe challenges in a macro sense.
On the interest rate side, Ithink that, as we talked about,
(31:56):
if you look at what's happenedwith the 10-year Treasury over
the last three months it's upabout 50 basis points, and over
the past six months it's up afull percentage point, even
though the Fed's lowered ratesfour times now.
So I think that is a challenge,just given how heavily
(32:19):
leveraged our industry is.
And so if you think about youknow all the maturities that are
out there on the commercialreal estate front, if you are in
a position where you need torefinance, it's going to be more
of a challenge than maybe youexpected.
And so you know, I don't thinkit's the type of thing where we
see this massive wave ofdefaults and delinquencies right
, because you're seeing banksand other lenders just be pretty
(32:39):
lenient with that, for the mostpart Mm-hmm, but you know we
will see more distress andultimately, you know that can be
a bad thing, obviously ifyou're the one with a distressed
property.
But it can also help move theneedle a little bit as far as
price discovery, which you know,as many folks in our industry
know, there's still a bit of adisconnect, you know, just given
(33:02):
where interest rates are andsome of the fundamentals.
So I think, ultimately, thoseare some of the challenges that
we're looking at and that'sreally, you know, across the
board, more so for office on theon the distress side, right.
Speaker 2 (33:16):
Yeah, yeah, we.
I've heard, both internally andthen externally with different
groups, that on one hand it's itremains a stress right to those
who hold offices if theyhaven't already somehow disposed
of them, and then for othersit's interesting how banks are
(33:36):
willing to work with groups andjust the default rates aren't,
as anywhere near where wethought they might be, and so
that's office.
That also includes maybe somemultifamily that's coming into
that refi situation.
So what I think was interestingis that now banks are sort of
at least in the conversationsI've heard willing to sort of
work with their borrowers,hoping to maybe see some
(34:01):
reprieve in the economy to help,as opposed to just getting
everything off their books.
I mean, I think that big firstwave was what had to be done,
and then, surprisingly, I'veheard that you know, banks are
actually working with borrowers,which is great, but then not so
great, maybe, yeah, absolutely,because you're not seeing that
price discovery that youmentioned.
Speaker 3 (34:20):
Yeah, absolutely, although you know I will say
that you know, just having aview into what our transactions
teams are working on, there'squite a bit of capital out there
that's looking for theseopportunistic deals and so
they're having some success withgetting those deals across the
line.
Of course, the price declinesversus five, 10 years ago are
(34:45):
quite substantial, but you know,that's where we are in the
market today and that's what isultimately needed to kind of
work through a lot of thisdistress.
So I think you'll see more ofthat and that's a positive that
we're starting to see thathappen in a more meaningful way.
Speaker 2 (35:03):
I think so and, again , it'll be so interesting to see
what happens as we continuethrough 2025.
Question that I get here andthere and that's just with the
advent of technology and sort ofyou know, ai driven type
approaches and the way we reviewdeals and things.
(35:23):
I'm just curious if you'reseeing any of that affect real
estate decisions, investmentdecisions, maybe at Cushman or
elsewhere.
Technology is just, it'sevolving.
Even I can't tell you how manypeople have told me oh, I just
had AI write that outline for me, or I had AI write that process
for me, and I don't leverage AIanywhere near like I should,
(35:44):
but curious if you're seeing anyinnovations there.
Speaker 3 (35:48):
Yeah, I think a lot of it, so far at least.
What I and at least my team hasbeen using is more you get this
30-page report right and youwant to know what the key
takeaways are, because nobodyhas time to read lengthy reports
of so much information outthere.
So I think automating tasks andthose kinds of things is really
(36:09):
where we see it most notablyright now.
I think that it'll beinteresting to watch you know
down the road where you know youcan query a data set and
actually have them recommend.
You know strategic decisionbased on how you communicate
with them.
I think that's probably a fewyears away for most people.
(36:32):
So right now it's more just anefficiency gain, which everyone
wants right.
That makes us all moreproductive and allows us to
focus on more high-value-addactivities, and so it's great.
At the moment I don't thinkwe're seeing too much.
That's, you know,revolutionizing.
(36:52):
You know the way that peopletransact and look at deal
structures completely, but it'smore of an aid at this point.
Speaker 2 (37:02):
Yeah, okay, I think that's fair.
Speaker 3 (37:03):
Future is bright, though.
Speaker 2 (37:04):
Yes, definitely.
I mean the fact that I can justhave AI.
You know, summarize meetingnotes is great.
I don't have to do it myself,so that's wonderful.
I love that.
Okay, so you know, we're kind ofheading towards the top of our
hour and I wanted to, you know,give you a chance to maybe
reflect on some of the things.
You know we're coming out of2024, which I think we all agree
(37:26):
had plus and minuses.
We now have a new president, areturn to a president back into
office.
We've got this looming sort ofpotential geopolitical hotbed
with US-China relations and allthe different tariffs, and so
that, could, you know, increasepricing.
We've got an interest ratesituation that has had some
reprieve, but we're not at rockbottom and nor will we be
(37:49):
probably for a while, if everagain in history.
Costs are where they are,demand is where it is.
Supply remains to be seen.
Looking to 25 and beyond, justcurious where you know what your
(38:13):
sentiments are to investorstoday and what you think that
they should be looking for orbeing on.
You know, being mindful of whatwould you?
You know, what would you tellfolks as they kind of look into
2025 and beyond?
Speaker 3 (38:24):
Well, I think, ultimately, what I always come
back to is the fact that theUnited States is the premier
destination for investment, notjust commercial real estate, but
across the board, given ourstrong democracy and just the
financial institutions and thetrust and the dollar being the
(38:44):
reserve currency.
The list goes on and so I thinkthat we're definitely seeing
more foreign capital coming intothe United States.
I think that there's going tobe a lot of capital chasing
limited resources, and so that'swhy we're pretty optimistic.
I think the challenges you haveto watch are just for turning
(39:06):
points in the market, right Alot of things that I look at
from day to day if there's anoversupply problem or just a
shift in other dynamics in themarket.
And right now I think that forcommercial real estate, as I
kind of opened with, I thinkthat across the board, things
look very positive.
You know, obviously everyone'slooking at the same kind of data
(39:29):
and having similar theses, andso I think it's going to at some
point here I think it's goingto turn to a pretty competitive
investment market, and even onthe leasing side too for many of
these sectors.
So that's why we're prettyoptimistic, and obviously
there's always going to be therisk factors out there interest
(39:50):
rates, we talked about.
Geopolitics probably worry memore than anything just because
it's so unpredictable and, youknow, can have a pretty big
impact.
So always something to watch,but that's something that
everyone really has to deal withand, at the end of the day,
like I said, the United Statesis, from an economic perspective
(40:11):
, from a financial, politicalperspective, looks pretty good
compared to the rest of theworld.
I mean, you look at China, someof the issues their economy is
having over there.
You look at certain parts ofEurope Germany is having a tough
go at it.
You look at certain parts ofEurope, germany is having a
tough go at it.
And so, ultimately, I thinkthat the United States is going
(40:31):
to come out very favorably andwe're going to start to see
things turn here in 2025 in theright direction.
Speaker 2 (40:38):
Yeah, no, I wholeheartedly believe that.
I feel it in the air.
I see it when I'm out and about.
I think the market is reacting.
I think there is a newfoundoptimism and it's great to hear
that you echo that as well.
You know, I think.
Speaker 3 (40:56):
Yeah, I think we've talked ourselves into Thrive in
2025.
Speaker 2 (41:01):
Yeah, I like Thrive in 2025.
These past four years, let'sjust put that behind us, let's
learn from it and and let's moveforward.
So I really appreciate that, um, okay, well, james, thank you
for your time.
We so appreciate you joining us.
Uh, again it's.
It hasn't been a full year, buthaving you kick off our 2025, I
(41:21):
think is is is so refreshingand great, and so it's good to
hear from you.
Congratulations again on yourrecent nuptials, and we're
hoping that maybe we can makethis an annual event.
So really appreciate your time,james.
Speaker 3 (41:34):
All right, we'll talk in 2026.
Best wishes for this year,thank you.
Speaker 2 (41:37):
Thank you.
Okay, so thank you from thepeaks of the Mountain West.
We appreciate you all joiningin.
This has been Peaks andPortfolios by Pet Companies.
Welcome to Peaks and Portfolios presented by PEG
Companies, your go-to podcastfor all things commercial real
estate investment.
I'm Rachel oh, and togetherwe're diving into current events
, trends, issues andopportunities impacting the CRE
investment space, fromdissecting the latest market
moves to sharing insights ontoday's commercial real estate
(00:25):
landscape.
It's time to maximizeportfolios here in the peaks of
the Mountain West and beyond.
Speaker 2 (00:35):
Okay, everyone, welcome, welcome to 2025.
I cannot believe we're finallyhere.
I feel like 2024 was a longyear a great year, but a long
year, and so, anyway, we're sograteful for you all to join us
here on Peaks and Portfolios byPeg Companies.
I think it's very apropos thatwe're kicking off 2025 with
(00:57):
James Boniker, who, for ourlisteners, you may recall, he
was our first guest last year aswell, so we're so grateful that
he was able to join us, I guesskind of fresh off of
marriage-ish maybe, maybe not,but welcome, james.
How are you?
Speaker 3 (01:15):
I'm doing well, so glad to be back with you in 2025
.
It was a long year last year,but I also feel like it went by
really quick and we're bothnewlyweds, so we had a lot going
on in our lives, right.
Speaker 2 (01:27):
Yes, yes, james got married in August and I got
married in November, so we werejust trading notes.
So 2024 was a good year forsure.
I mean, I don't know if allinvestors may think that same
thing, but at least it was goodfor the two of us.
Okay, just a little bit aboutJames.
He is a senior economist withCushman and Wakefield in their
(01:50):
global think tank and he is just.
You know, we really enjoyed ourfirst conversation.
He shared with us a little bitabout the economy and some
predictions, and so we'rebringing him back as we, as we
look into 2025, maybe a littlebit of a recap on 2024.
But you know, he has a uniqueperspective and that's all he
(02:11):
does is think about this, so wereally want to tap into him and
and get some more insights.
So, hey, james, I'm going tojust throw a little thing at you
.
We I heard a lot about, youknow, coming off of COVID and
whatnot.
People talked about survivinguntil 2025.
And I'm just curious is it asurvive until 2025 mentality
(02:32):
still, or is it a thrive in 2025?
What are your thoughts?
Speaker 3 (02:36):
I think it's a little bit of both, depending on your
perspective, depending on whatasset class you're exposed to,
whether you're on the investorside or the leasing side.
I think that very clearly fromwhere I sit and really across
the board for commercial realestate, I think the optimism has
really started building overthe last few months.
I think it really started withthat first Fed rate cut that we
(03:00):
got a few months ago, that big50 basis points and a bit of a
false start maybe, because nowI'm sure we'll get into that
with the outlook for goingforward, but I think that was a
crucial moment.
I think that investor sentimentreally across the board, like I
mentioned, has been positiveand we're seeing more
(03:21):
transactions, you know, not justbeing conceptualized but being
acted on, which is, you know,obviously, what we're all here
for.
So you know sentiment isdefinitely positive and even in
some of the sectors ofcommercial real estate that have
been struggling, things arestarting to turn.
So you know we're prettypositive on the outlook for the
year ahead.
Speaker 2 (03:41):
Yeah, I would agree.
You know I went to SanFrancisco.
My new home is now in the BayArea.
We went there for Christmas andI don't know if you've been
down to Union Square lately, butit was hustling and bustling
and I think the last time I hadbeen there I kind of feared for
my life and it was clean andthere were people you know
(04:02):
running about, so I felt veryhopeful.
I feel like that could be maybea little bit of an indicator of
what's to come.
Speaker 3 (04:09):
Well, that's great.
Sorry, that's great to hear.
I know that I have not been outthere, but you know reading the
paper and what you heareveryone's got their own story
right about how bad things were.
So I've heard similar latelyabout how things are turning
around and people are out andabout and shopping and going to
work.
Speaker 2 (04:26):
So yeah that's great.
Speaker 3 (04:27):
That's great.
Speaker 2 (04:27):
Yeah, no, no, it was.
Even the highways were busy,which again we didn't see much
of that either.
I think Mondays and Wednesdayswere the days that sorry.
In the past, when I go on aMonday or a Friday, the roads
were really open and it wasactually more busy, which just
(04:48):
means more people, I think, areactually going into the office
than before.
So again, my little tinyexperience, but I feel super
hopeful and I really feel likethat's kind of what we're seeing
.
But kind of piggybacking off ofthat, let's talk about some of
the sectors in real estate thathave been most hard hit and
where you folks are seeingthings.
(05:09):
So let's talk office.
I mean, san Francisco is allabout office.
Just curious your thoughts orwhat you guys are seeing in
terms of vacancies, lease rates.
I mean, is it more of the same?
What are we looking at?
Speaker 3 (05:22):
No, so we've definitely started to see that
more leasing is taking place.
I think that you know, a fewthings happened over the
previous few years, right,obviously, the big disruptor
right is hybrid work, and youknow, jury's still out on kind
of where that lands.
Everyone wants to know.
Are we at a new equilibrium?
I think that you'll see a moregradual evolution of how hybrid
(05:47):
work fits into total workplacestrategy, and that's something
that obviously is a big factorand something that we watch very
closely.
But even within that kind ofsegment, it's different for
different companies, dependingon your size, depending on your
sector, depending ongeographically.
So it's really not a black andwhite question.
(06:08):
I think there's a lot of nuancethere and it's something that's
just going to be evolving.
But I think the thing that youknow a lot of people forget,
right is I mean, bay Area is agreat example.
Right, there's been a lot oftech layoffs over the past few
years, which is a little bitironic given all the hype around
(06:28):
generative AI and a lot ofthese new technologies, right,
but workforce counts have beendown in that sector.
The finance sector hasn't beenadding a lot of jobs, and even
other office using sectorshaven't as well.
And so when you think aboutkind of how we used to think
about the office sector, it wasall about jobs, jobs, jobs,
right.
And so you know that's still areally big factor given all the
(06:50):
economic uncertainty that's beenout there the past couple years
.
And so you know, I think, withyou know the economy holding up
strong, you know a newadministration coming in giving
some optimism to some sectors, Ithink that that's been a
positive as well, where we arestarting to see that firms are
acting on leasing decisions moreproactively, I should say.
(07:13):
I mean Manhattan, for example,had their best leasing quarter
following the pandemic in thefourth quarter of 2024.
So a lot of people, new Yorkersat least, like to say that as
New York goes, so does the restof the country, and so I think
that's a very positiveindication for where things are
headed, that you know the bottomis here and things will start
(07:35):
to turn around.
Speaker 2 (07:36):
Yeah, yeah, oh my gosh, please, please, let the
bottom be in our rear viewmirror and everything up and
onward.
Let's talk a little bit aboutthat.
Until you mentioned Manhattanas kind of a leading indicator
for the rest of the country.
You know, what we tend to seeis that there's more vacancies
in older properties as those whoare now leasing they're moving
(07:59):
towards higher quality, newerbuilds.
Does that continue to holdthroughout the country?
Again, that's in ourperspective, kind of from our
Mountain West markets, but I'mjust curious if that's across
the board as well.
Speaker 3 (08:14):
Absolutely.
That's one thing that's veryconsistent.
No matter which market you lookin across the United States is
that flight to quality is a veryreal thing.
Interesting stat if you justkind of split up the office
market nationally and look atyou know a third, top third, of
the buildings based on their thelowest vacancy rate.
(08:36):
They're essentially fullyleased and you know a lot of the
characteristics that they shareare what you might expect,
right.
They have great amenities.
Of the characteristics thatthey share are what you might
expect, right.
They have great amenities.
They're in prime submarkets andeven within the submarket level
.
The best blocks are the bestkind of neighborhoods and so you
know that's absolutely a thingthat's going to continue.
The issue is or not really anissue, but a feature of that is
(09:01):
that we're running out of thatsort of space, right.
If you think about theconstruction cycle, nobody's
been lending on new officeconstruction for a couple years
now and so we're not buildingmore of it and what's there is
pretty much fully leased.
And so I think the big questionfor 2025 is what happens to kind
of that second, third, fourthtier of across the quality
(09:23):
spectrum, right and right andfirms.
If they're in expansion mode,they're going to have to go
somewhere, but they're going tobe very selective, and so I
think really, what we're goingto start to see materialize is
landlords who have invested inmaking the proper renovations
and doing whatever they canreally to entice tenants.
They're going to be the winnersof the next few years, right?
Speaker 2 (09:44):
Yeah, I tend to see that in our market as well, and
again, I spent more time in theBay Area, and so we're starting
to see that, and I think that'sagain a strong indicator of
resuming work, more of a hybridapproach as opposed to staying
all at home.
And then again we keep hearingabout all this AI and this
(10:04):
digital economy and cloudcomputing and all of that.
So let's just talk, let's kindof move into that.
Our office used to be the realestate that everyone was sort of
clamoring for.
I hear all about data centers.
Any updates or thoughts on datacenters as we enter into this
new year?
Speaker 3 (10:21):
Yeah, it's going to continue to be hot.
The demand is just insane outthere for data centers and just
the ability to have that cloudcomputing.
Every big tech company islooking for it, and even if
you're not a tech company, youneed that cloud space to store
your data and to do theanalytics that virtually every
(10:43):
large company and even smallercompanies are investing in, and
so the demand is not thequestion.
That's going to continue to goon an upward trajectory.
I think the supply is reallythe limitation now, and
specifically power supply too.
That's a big issue right wherethere's hotspots, where they've
got the power to support thattype of computing, and so I
(11:09):
think you'll start to see moreinvestment around that
infrastructure.
That will help supply over time, but really for the foreseeable
future, I think it's going tobe a very, very tight market to
get into, and you'll see rentscontinue to go much higher.
Speaker 2 (11:22):
Yeah, no, I am, you know I didn't.
I'm not so familiar withnuclear power, right, but it
just seems like our grid isovertaxed, as is.
There's only so much more thatit can handle, and we're going
to need to find alternativepower sources.
So it'll be interesting to see.
At least that's myunderstanding.
With data centers, the bigthing is is where do you, how do
(11:50):
you support the data centers?
Right, where is the powersource?
And if our grid is maxed out,then where do you go?
And solar can only do so muchand there's only so much wind,
apparently so um so it does seemlike we're gonna have to figure
that out.
So, to your point,infrastructure, investing in all
that, that'll be reallyinteresting.
Um, you know, as we, we, wekind of hit on it at the very
beginning too, it is.
It's a new administration, youknow.
(12:11):
The election results are, thatis now behind us and we now have
a new presidency coming in.
How do you think that's goingto affect the next four years?
Speaker 3 (12:21):
It'll be interesting to watch.
I think you know, first of all,the fact that it was a pretty
decisive presidential result.
That's really the first bighurdle, because what nobody
wants is kind of that, you know,weeks or months long waiting
period of Supreme Court trialsand all that kind of stuff where
nobody knows what's reallygoing on, because that just
stalls all types of investmentout.
(12:43):
So, you know, fortunate for theeconomy, for commercial real
estate, that was a decisiveresult.
You know, obviously, theoptimism initially, I think, if
you look at the stock marketanyway, I think a lot of that
really stems from a few thingsin that, you know, tax policy is
likely to be more favorable,deregulation in certain sectors
(13:05):
might create more M&A activityand just less regulation is just
generally better for manyindustries, and so I think
there's some optimism behindthat.
I will say that it's not allgood news, at least from you
know, kind of an objectiveeconomist perspective, right,
because I think the two bigthings that are going to be
(13:26):
challenges right are the tariffs, which at this point it seems
very likely that there's goingto be more tariffs on products
coming into the United States,which raises costs for those
importing them and ultimatelyaffects consumer prices too.
So that's the one big thing.
(13:47):
At this point there's moreunknowns than knowns the
magnitude, the geographicalscope.
We just don't have muchinformation on that.
So that'll be something toreally carefully watch, with
implications on industrialretail especially.
Implications on industrialretail especially.
(14:09):
Second big thing is immigrationand the potential to possibly
have some scope of deportationof people who are in the United
States, which is a really bigfactor.
Because if you look at over thepast two years, two, three
years or so, really the primarysource of labor force growth has
been from foreign-born workers.
So you know that's partiallylegal, partially illegal
(14:29):
immigration, but the fact of thematter is that's what's been
supporting the labor forcegrowth that we've gotten and
that obviously drives economicactivity.
So that'll be interesting towatch.
You know, I think that thatcould have implications on
inflation and just hiringstrategies and the ability for
companies to expand.
(14:50):
So those are kind of the twocaution points that I'll be
watching.
But on the flip side, as Imentioned, there is some
optimism around.
You know tax policy,deregulation.
Speaker 2 (15:01):
Yeah, yeah.
No, there's no perfect rightsolution, there's no perfect
administration per se.
Speaker 3 (15:07):
But yeah, and I, I I will add you know we we've done
some studies on this.
If you look back over time andwhether you look at a commercial
real estate investmenttransaction volume, or whether
you look at leasing activity, uhversus in, you versus in
Republican versus Democratadministrations, there's almost
no correlation either way.
(15:28):
Right?
The underlying economics arewhat drive our industry and so I
think on the margin there mightbe pros and cons depending on
where you sit, but for themarket as a whole not really
going to influence things allthat much.
Speaker 2 (15:45):
Yeah, interesting.
Ok, I look and see, I feel likeit's been in kind of a again,
that whole sentiment of, likeyou know, stay alive until 2025,
which I think it's.
Just, you know, people try tofind words that rhyme and
whatnot.
And then when we think aboutthis thriving in 2025, what are
the sectors then do you thinkare poised for most growth in
(16:07):
2025?
Speaker 3 (16:09):
Well, you know data centers, as we mentioned, a lot
of these alternate, you knowwhat we'd call alternative
assets.
They're not such a nicheproduct anymore, right, because
there's been so muchinstitutional and private
capital poured into them.
But, you know, I think, datacenters being one, I think of
the you know the core, the bigones, right?
I think that really, really,across the board, I mean,
(16:32):
multifamily has had a tremendousyear in 2024.
And you know if anyone outthere has been in the market
looking for to buy a home lately, it's tough out there.
Inventory is very, very low,there's a massive housing
shortage, even in multifamilyspace, and so I think that's
(16:52):
really going to be a strongpoint for 2025, given especially
if the economy holds up prettywell, like we expect it to, so
multifamily, I think, willcontinue to do really well.
I think that the industrialmarket is pretty interesting
because over the past few years,yes, demand has fallen off
(17:12):
somewhat, given just some of theastronomical rent increases
that we saw over previous years,but it's really been more of a
supply side story where we'veseen vacancy go from around 3
percent nationally to about 6.5percent.
So it's a pretty big job, but6.5 percent isn't isn't all that
bad and we're still seeing thatthere's a lot of demand out
(17:35):
there for industrial space ascompanies just fill out their
supply chains and e-commercecontinues to grow.
So multifamily industrial, Ithink really positive on.
And then I work very closelywith our retail team and I know
that I think people are startingto catch on that retail is
actually a pretty good sector toinvest in.
(17:56):
We've seen a pretty good amountof activity in the shopping
center and even in the mallspace, you know, for
redevelopment projects andthings like that.
So, and retail, contrary tomany of the other asset types,
you know, haven't been buildingany more of that really for the
past decade not a lot of itanyway.
So that's come back verystrongly and even in office not
(18:21):
to try to sound like the ultraoptimist, but really I think
there is a positive story there.
So you know, 2025 is lookingpretty good across most of the
sectors.
Speaker 2 (18:33):
Yeah, no, I think that we're seeing that as well,
and you know one of the areasthat we are also quite.
I mean we're not in datacenters, we're not in industrial
.
Really, I mean it's reallymultifamily.
You know a sliver of office.
But there is a sector that weare quite invested in and that's
hospitality, but notfull-service hospitality and
(18:56):
more that select service,limited service hospitality.
And just curious if that comesacross your radar at all.
Speaker 3 (19:03):
It does and it shows up really in a lot of mixed use.
And even I think one thing isinteresting, just to go back to
office for a second.
But if you think about thesemodern offices that are doing
really well and attractingtenants at high rates becoming
more of a hospitality vibe,right, you've got excellent food
(19:23):
and beverage options, you'vegot concierge services, you've
got interesting fitness ideas inthere like golf simulators and
things.
So I think we're just seeinghospitality in general, the
broad sense of hospitality,enter into more types of
properties and that's just afunction of where people are
(19:44):
spending their time and it tiesback a little bit to this hybrid
workforce where maybe peopleare getting some of their
leisure, entertainment and theirnecessities in the middle of
the day and at different timesand in different places.
So I think you know hospitalityin general is something that's
evolving and I think that youknow we're seeing some
(20:04):
interesting ideas definitelycatch on over the last couple of
years.
Speaker 2 (20:07):
Yeah, no, I love that you say that we actually again
the two primary food groups thatwe service are multifamily and
hospitality.
And we are now seeing asmultifamily becomes more
competitive right Like there'srenters out there and you know,
come to our building versus youknow the one down the street and
(20:29):
we are finding that because westraddle the two sectors, we're
starting to kind of mix the two,meaning offering more
hospitality-esque type offeringsat our multifamily and there's
going to be more to come.
But yeah, no, we're.
You know even to the extentthat, like you know, you have
one global brand, a renter couldbe in several different markets
(20:51):
and you know you don'tnecessarily have to sign a new
lease each time.
Now that you migrate frommarket to market, you know you
could be with the samemultifamily brand, kind of like
a hotel like Marriott.
You know loyalty or Hyattloyalty, but you know, move from
market to market with no, youknow, lease renewal you could
just transfer.
And then you know, to theextent that there are food and
(21:15):
beverage offerings, you know, inthe common space areas, and
then all the amenities that webuild out.
Like it's interesting, we'restarting to morph the two a bit
as we are trying to be morecompetitive and really stand out
in the market.
Speaker 3 (21:30):
No, that's spot on.
That's great to hear, and Ithink we absolutely see that
trend continue.
Actually, somewhat poignantly,I'm in my apartment building
here in Boston and I'm sittingin the conference room, and if
they didn't have the conferenceroom here, I would have to go
into the office every day.
God forbid.
(21:51):
Don't tell the office peoplethat I know, I know, but it's
just so nice to to have thatsort of uh, mix of you know,
think about just how peoplespend their day and all the
things they do over the courseof that day.
To have them all kind ofintertwined in this seamless way
, I think, is really the futureof where we're going here.
Speaker 2 (22:11):
Yeah, yeah, no.
I think it's interesting thatyou mentioned that.
Um, you know there's we talkabout multifamily a lot.
It's, I think, the most, one ofthe more resilient investment
classes out there, at least interms of commercial real estate.
And something that we've alsobeen dabbling in in the recent
years is this build for rentright.
So on the single family rentalside, whether it be townhomes or
, you know, freestanding, youknow homes if you will, with,
(22:35):
you know freestanding, you knowhomes, if you will, with little
gardens and you know unattachedwalls, so horizontal living.
But costs have been, you knowcosts and interest rates are
where they are.
So development has definitelyslowed.
How does the BFR single familyrental portion of multifamily,
how does that come up on yourradar?
What have you guys been seeingthere?
Speaker 3 (22:52):
Yeah, I think it's extremely attractive because if
you look at the situation thatwe're in today, right, mortgage
rates are still about 7%.
Again, very, very limitedinventory out there, and if you
think about the potential buyersthat are out there, it's
exactly the type of people youknow, maybe who just got married
(23:12):
and are thinking about havingkids, who don't want to be in an
apartment building, that's, youknow, they want kind of that
family aspect, the communityaspect, and I think that
built-to-rent single-familyrental fits that bill exactly
right.
Where the housing crisis isn'tgoing to be resolved overnight,
(23:35):
hopefully there's some policiesthat come in place down the line
.
But you know, in the meantime,I think that, yeah, that's just
a very attractive from a demandperspective, given how little
supply there is out there rightnow.
Speaker 2 (23:48):
Yeah, yeah, and we're definitely part of that.
We've kicked off a couple ofdevelopment projects, but I'll
be honest, it's been difficultto pencil ground-up development
still, and it's really just twofactors right cost and interest
rates.
We're seeing a little bit of areprieve, but not enough to make
a dent.
So then you switchedacquisitions.
(24:08):
We've got some dry powder tospend, but then you know no one
is selling at cap rates thatmake sense either.
So it is interesting how it justcontinues to feed off of each
other.
I just don't know.
I'm just I'm wondering wherethings will head as demand
continues to rise, supplyremains constrained.
Speaker 3 (24:29):
Absolutely.
I mean from a developmentaspect.
It's still pretty tough outthere, regardless of how great
your narrative is, you know justbecause of where interest rates
are, so you know that's likelyto get better.
I think that you know we'veseen interest rates come down a
little bit, maybe not as much aswe all would have hoped by now,
(24:50):
but still moving in thepositive direction.
And you know, I think as longas the fundamentals you know
income, rents continue to holdup and improve which we believe
they will, right, I think it'sgoing to get easier.
We have started to hear over thelast few months that you know,
lending community especially alot of the banks have become a
(25:14):
little more eager to get moneyout the door, and so that's a
positive.
It's going to be a bit of thebanks have become a little more
eager to get money out the door,and so that's a positive.
It's going to be a bit of agradual process.
I don't think we see this, youknow, massive development wave
coming anytime soon.
So you know you just got to,like you said, just really have
something to pencils and youknow, wait for those interest
rates to come down and hopefullythings will pick up steam a
(25:34):
little bit.
Speaker 2 (25:39):
Yeah, you know, I know you mentioned that deal
flow has picked up, transactionshave picked up.
You know it's the start of theyear.
There's a lot of the bigconferences kick off in January
and I think you know my team isgoing to all of them across the
country in the different sectors, and we're, I know one of the
big things is the transactionvolume going to continue to
uptick.
Is it really like, are wereally going to see more deal
flow and, you know, moreexchanges of hands and monies
(26:03):
and stuff?
And so I'm just curious youknow what you're seeing there,
what you're thinking about that,because we would love to
acquire and it's still notnecessarily a slam dunk.
Speaker 3 (26:18):
Yeah, it's again.
It's been a bit more of agradual process than I think a
lot of people expected, but it'sreally something that you know.
Internally at Cushman Wakefieldwe've been advising and
advising our clients is that youknow interest rates aren't
going back to, you know, 3%overnight, and you know you
really just have to be strategicand you know act decisively
when the opportunity presentsitself.
(26:40):
So, but you know, moregenerally, yes, I do think we'll
start to see transaction volumepick up.
It's not going to be thisV-shaped recovery though that I
think you know we'd like to see.
So it's really just a matter ofpicking your spots and I think
that ultimately, by the secondhalf of of this year, that we'll
start to see some real, realtraction along those fronts,
(27:04):
just even though interest ratesaren't coming down as quickly as
we'd like.
You know there's just a lot offolks that have been on the
sideline for so long now thatyou know.
I think the realization,ironically, that interest rates
are going to be higher forlonger, it's like all right.
Well, we can't bet on that.
You know this is the newreality and so if we want to
(27:24):
make our investments, we mighthave to capitulate a little bit
on where we think prices are,whether you're a seller or a
buyer, and so I do think we'llstart to see things pick up, but
you know, not necessarilybecause interest rates are going
to go a lot lower.
Speaker 2 (27:39):
Yeah, yeah.
Well, I mean, if you look atthe treasury yield and where
that remains and the ability inwhich to like how much more, how
much risk our investors aregoing to take, I think that'll
continue to evolve, as youmentioned.
You know what they always sayreal estate's a long, long play
anyway.
So Absolutely Yep and you knowwhat they always say real
estate's a long long play anyway.
So absolutely OK.
So let's then shift a littlebit.
(28:01):
Are there specific regions inthe US or globally for that
matter that you think mayoutperform in 2025?
Speaker 3 (28:08):
Yeah, I think, again, it depends on the property
sector a little bit.
But just from, you know, let'sjust talk about, you know, maybe
multifamily just as an example.
I think that you know what wesaw in 2024 was really this
shift back away from the Southand the West and specifically a
lot of those hot Sunbelt marketswhere construction was just
(28:31):
going up faster than you couldwatch it.
We really saw that a lot ofMidwest and Northeast markets,
secondary markets that have somecost advantages to your bigger
cities, really started tooutperform and I do think we see
more of that in 2025.
And I think economically thatreally ties in well.
That's why I use multifamily asan example, because if you
(28:53):
think about the drivers there,you know it's about jobs, it's
about migration and I think thatreally reflects what we see
regionally, where you know someof your smaller secondary
markets.
You know one thing is that overthe course of the pandemic and
even following, people hadstarted to kind of shift out to
(29:14):
smaller cities and even withincities, to the suburbs, and we
started to see that that'sslowed down a little bit as it
relates to cities.
As you mentioned, san Franciscolooks like maybe it's coming
back a little bit, and so Ithink that's a great example
where, in addition to kind ofthese smaller Midwest markets
(29:35):
within a lot of gateway cities,I think areas that have been
disadvantaged because of returnto office and because of some of
those earlier migration trendsI think we start to see things
pick up there as well.
So that's exciting.
We're seeing more interest frompublic leaders right in
(29:57):
revitalizing their cities andgetting people there, whether it
be to live, to work or to play,and so I think that you know,
over the course of the nextcouple of years, we'll start to
see some really strong activityin downtown areas.
Speaker 2 (30:11):
Yeah, yeah, no again.
One little shopping trip.
I don't know if that is thebest gauge of return to
everything, but it was superencouraging.
The last time I had been thereit was really disappointing.
So it was nice to see at leasta ton of shopping and, you know,
very clean streets and just alot of robust activity and
(30:33):
clogged highways.
It was just a little bit.
It took a minute to get intotown, which was great, I feel
like it was.
Speaker 3 (30:38):
Traffic is great, right, yeah.
Speaker 2 (30:39):
Traffic is a good indicator.
I mean, something's happening,and I think it's the first time
I was like, oh wow, I'm actuallyhappy to see traffic.
So okay, so curious.
Then, what are some headwindsor some of the bigger risks that
you see as we go into?
I mean, I know that we try tobe optimistic and as an
economist, you have to see bothsides and I think you're
probably trained to be morepessimistic, if anything.
(31:01):
Where are some headwinds thatyou potentially see that could
be problematic as we head intothe new year?
Speaker 3 (31:09):
Yeah, I think that, on a macro sense, some of the
uncertainty that we talked aboutaround tariffs and immigration
policy I think that those bothare going to be a factor,
whether or not it falls more onthe corporate side or the
consumer side.
Either way, I think that thereare going to be some challenges
(31:32):
there and it's not going toaffect everyone equally.
I think that you're seeingcompanies really ramp up their
lobbyist pool and try toposition themselves well for
whatever policies come down thepipe.
So I think those are going tobe challenges in a macro sense.
On the interest rate side, Ithink that, as we talked about,
(31:56):
if you look at what's happenedwith the 10-year Treasury over
the last three months it's upabout 50 basis points, and over
the past six months it's up afull percentage point, even
though the Fed's lowered ratesfour times now.
So I think that is a challenge,just given how heavily
(32:19):
leveraged our industry is.
And so if you think about youknow all the maturities that are
out there on the commercialreal estate front, if you are in
a position where you need torefinance, it's going to be more
of a challenge than maybe youexpected.
And so you know, I don't thinkit's the type of thing where we
see this massive wave ofdefaults and delinquencies right
, because you're seeing banksand other lenders just be pretty
(32:39):
lenient with that, for the mostpart Mm-hmm, but you know we
will see more distress andultimately, you know that can be
a bad thing, obviously ifyou're the one with a distressed
property.
But it can also help move theneedle a little bit as far as
price discovery, which you know,as many folks in our industry
know, there's still a bit of adisconnect, you know, just given
(33:02):
where interest rates are andsome of the fundamentals.
So I think, ultimately, thoseare some of the challenges that
we're looking at and that'sreally, you know, across the
board, more so for office on theon the distress side, right.
Speaker 2 (33:16):
Yeah, yeah, we.
I've heard, both internally andthen externally with different
groups, that on one hand it's itremains a stress right to those
who hold offices if theyhaven't already somehow disposed
of them, and then for othersit's interesting how banks are
(33:36):
willing to work with groups andjust the default rates aren't,
as anywhere near where wethought they might be, and so
that's office.
That also includes maybe somemultifamily that's coming into
that refi situation.
So what I think was interestingis that now banks are sort of
at least in the conversationsI've heard willing to sort of
work with their borrowers,hoping to maybe see some
(34:01):
reprieve in the economy to help,as opposed to just getting
everything off their books.
I mean, I think that big firstwave was what had to be done,
and then, surprisingly, I'veheard that you know, banks are
actually working with borrowers,which is great, but then not so
great, maybe, yeah, absolutely,because you're not seeing that
price discovery that youmentioned.
Speaker 3 (34:20):
Yeah, absolutely, although you know I will say
that you know, just having aview into what our transactions
teams are working on, there'squite a bit of capital out there
that's looking for theseopportunistic deals and so
they're having some success withgetting those deals across the
line.
Of course, the price declinesversus five, 10 years ago are
(34:45):
quite substantial, but you know,that's where we are in the
market today and that's what isultimately needed to kind of
work through a lot of thisdistress.
So I think you'll see more ofthat and that's a positive that
we're starting to see thathappen in a more meaningful way.
Speaker 2 (35:03):
I think so and, again , it'll be so interesting to see
what happens as we continuethrough 2025.
Question that I get here andthere and that's just with the
advent of technology and sort ofyou know, ai driven type
approaches and the way we reviewdeals and things.
(35:23):
I'm just curious if you'reseeing any of that affect real
estate decisions, investmentdecisions, maybe at Cushman or
elsewhere.
Technology is just, it'sevolving.
Even I can't tell you how manypeople have told me oh, I just
had AI write that outline for me, or I had AI write that process
for me, and I don't leverage AIanywhere near like I should,
(35:44):
but curious if you're seeing anyinnovations there.
Speaker 3 (35:48):
Yeah, I think a lot of it, so far at least.
What I and at least my team hasbeen using is more you get this
30-page report right and youwant to know what the key
takeaways are, because nobodyhas time to read lengthy reports
of so much information outthere.
So I think automating tasks andthose kinds of things is really
(36:09):
where we see it most notablyright now.
I think that it'll beinteresting to watch you know
down the road where you know youcan query a data set and
actually have them recommend.
You know strategic decisionbased on how you communicate
with them.
I think that's probably a fewyears away for most people.
(36:32):
So right now it's more just anefficiency gain, which everyone
wants right.
That makes us all moreproductive and allows us to
focus on more high-value-addactivities, and so it's great.
At the moment I don't thinkwe're seeing too much.
That's, you know,revolutionizing.
(36:52):
You know the way that peopletransact and look at deal
structures completely, but it'smore of an aid at this point.
Speaker 2 (37:02):
Yeah, okay, I think that's fair.
Speaker 3 (37:03):
Future is bright, though.
Speaker 2 (37:04):
Yes, definitely.
I mean the fact that I can justhave AI.
You know, summarize meetingnotes is great.
I don't have to do it myself,so that's wonderful.
I love that.
Okay, so you know, we're kind ofheading towards the top of our
hour and I wanted to, you know,give you a chance to maybe
reflect on some of the things.
You know we're coming out of2024, which I think we all agree
(37:26):
had plus and minuses.
We now have a new president, areturn to a president back into
office.
We've got this looming sort ofpotential geopolitical hotbed
with US-China relations and allthe different tariffs, and so
that, could, you know, increasepricing.
We've got an interest ratesituation that has had some
reprieve, but we're not at rockbottom and nor will we be
(37:49):
probably for a while, if everagain in history.
Costs are where they are,demand is where it is.
Supply remains to be seen.
Looking to 25 and beyond, justcurious where you know what your
(38:13):
sentiments are to investorstoday and what you think that
they should be looking for orbeing on.
You know, being mindful of whatwould you?
You know, what would you tellfolks as they kind of look into
2025 and beyond?
Speaker 3 (38:24):
Well, I think, ultimately, what I always come
back to is the fact that theUnited States is the premier
destination for investment, notjust commercial real estate, but
across the board, given ourstrong democracy and just the
financial institutions and thetrust and the dollar being the
(38:44):
reserve currency.
The list goes on and so I thinkthat we're definitely seeing
more foreign capital coming intothe United States.
I think that there's going tobe a lot of capital chasing
limited resources, and so that'swhy we're pretty optimistic.
I think the challenges you haveto watch are just for turning
(39:06):
points in the market, right Alot of things that I look at
from day to day if there's anoversupply problem or just a
shift in other dynamics in themarket.
And right now I think that forcommercial real estate, as I
kind of opened with, I thinkthat across the board, things
look very positive.
You know, obviously everyone'slooking at the same kind of data
(39:29):
and having similar theses, andso I think it's going to at some
point here I think it's goingto turn to a pretty competitive
investment market, and even onthe leasing side too for many of
these sectors.
So that's why we're prettyoptimistic, and obviously
there's always going to be therisk factors out there interest
(39:50):
rates, we talked about.
Geopolitics probably worry memore than anything just because
it's so unpredictable and, youknow, can have a pretty big
impact.
So always something to watch,but that's something that
everyone really has to deal withand, at the end of the day,
like I said, the United Statesis, from an economic perspective
(40:11):
, from a financial, politicalperspective, looks pretty good
compared to the rest of theworld.
I mean, you look at China, someof the issues their economy is
having over there.
You look at certain parts ofEurope Germany is having a tough
go at it.
You look at certain parts ofEurope, germany is having a
tough go at it.
And so, ultimately, I thinkthat the United States is going
(40:31):
to come out very favorably andwe're going to start to see
things turn here in 2025 in theright direction.
Speaker 2 (40:38):
Yeah, no, I wholeheartedly believe that.
I feel it in the air.
I see it when I'm out and about.
I think the market is reacting.
I think there is a newfoundoptimism and it's great to hear
that you echo that as well.
You know, I think.
Speaker 3 (40:56):
Yeah, I think we've talked ourselves into Thrive in
2025.
Speaker 2 (41:01):
Yeah, I like Thrive in 2025.
These past four years, let'sjust put that behind us, let's
learn from it and and let's moveforward.
So I really appreciate that, um, okay, well, james, thank you
for your time.
We so appreciate you joining us.
Uh, again it's.
It hasn't been a full year, buthaving you kick off our 2025, I
(41:21):
think is is is so refreshingand great, and so it's good to
hear from you.
Congratulations again on yourrecent nuptials, and we're
hoping that maybe we can makethis an annual event.
So really appreciate your time,james.
Speaker 3 (41:34):
All right, we'll talk in 2026.
Best wishes for this year,thank you.
Speaker 2 (41:37):
Thank you.
Okay, so thank you from thepeaks of the Mountain West.
We appreciate you all joiningin.
This has been Peaks andPortfolios by Pet Companies.
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