Finance & Economy

Real Estate

Are we in a recession: Hour of insight with Dr. Peter Linneman

October 31, 2022

Are we in a recession: Hour of insight with Dr. Peter Linneman

Dr. Peter Linneman

Leading Economist, Professor Emeritus, The Wharton School of Business

Dr. Peter Linneman and Willy discuss the state of the market, highlights from the quarterly Linneman Letter, and more.

Market uncertainty and the looming threat of a recession are causing people to be fearful—but should they be?  On this episode of the Walker Webcast, we’re joined by renowned economist Dr. Peter Linneman. He and Willy discussed the state of the market, highlights from the quarterly Linneman Letter, and his economic predictions.

The conversation starts off with the state of the economy. It’s not so much interest rates which have the market frightened, Peter says, but the journey of how we got to these rates. 

Markets typically hate uncertainty. Yet human and physical capital and creativity remain constant, Peter points out, and that is our nation’s real wealth. He posits that increases in interest rates today will enhance economic growth, not cause a recession, through better pricing of things that are valuable.

Peter and Willy then focus in on concerns specific to the commercial real estate industry—like cap rates and getting a solid loan to value in today’s market.

“Money can’t sit on the sidelines forever,” Peter says. “Now is the best time to start deploying capital.” Peter says his numbers show “promise for the future” in areas such as supply shortfalls and sales. He notes that the average multifamily sale price in July was $254,000 per unit—an all-time high, and 50% above the historic median. 

Peter urges listeners not to allow themselves to become distracted by the “shiny objects” of the current moment. Focus instead on the fundamentals. He also highlights the importance of lender discipline and patience. 

Where is the capital going and how is the skyline taking shape right now? Peter shares a breakdown of the $393 billion of construction spend going on right now across major asset classes. About 40% is going to industrial, 26.5% to multifamily, 20% to offices, 9% to retail, and 4% going to lodging. Peter explains that these numbers don’t necessarily reflect brand-new construction but rather projects which have been ongoing, in some cases for multiple years. 

Willy and Peter also discuss the return to office. This has been slower than initially predicted, Peter says, but numbers have been picking up by about 2% weekly. They also talk about technology. In today’s world, company owners can feel like they must constantly update their systems and investments to be on the forefront. “This can easily get out of hand,” Peter says.  “Technology for technology’s sake is nothing special.” He believes the most important thing is to remain open to new and challenging ideas. 

The conversation also touches on fuel costs. Peter anticipates that oil prices will begin to decrease from here and shares his insights from 12 years of studying the energy sector. 

The episode closes with Peter’s thoughts on hiring, senior housing, the road ahead, and where to invest right now.



        

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