The Most Insightful Hour in CRE Part 27 with Dr. Peter Linneman

With interest rates at 25-year highs and oil-driven inflation adding new uncertainty, what should commercial real estate investors do now?

Willy and Peter unpacked why Peter believes rates will eventually come down, what owners facing near-term maturities should consider, and why disappearing concessions could signal a turning point for multifamily. They also explored the extraordinary flow of capital into data centers and why Peter believes the sector could eventually become overbuilt, the outlook for office, today’s shortage of equity capital, and where Peter would invest $100 million in commercial real estate right now.

Watch or listen to the replay.

1. Who is Dr. Peter Linneman?

Dr. Peter Linneman is a leading real estate economist, founder of Linneman Associates, and author of the widely read Linneman Letter, where he shares data-driven views on the U.S. economy, capital markets, and commercial real estate. He is also a recurring guest on the Walker Webcast, joining Willy Walker for their quarterly segment, The Most Insightful Hour in CRE, helping investors, owners, and lenders make sense of what is happening in the market and what it means for the road ahead.

2. What are the top reasons to watch this webcast?  

• Hear why Linneman believes today's elevated interest rates are abnormal and why owners facing near-term maturities may want to consider shorter-term financing.
• Understand how higher oil prices are affecting inflation and why he still expects inflationary pressure to ease.
• Get insight into why improving multifamily fundamentals may show up first through declining concessions rather than significant increases in asking rents.
• Hear where Linneman would invest in commercial real estate today and why a long-term perspective matters in the current market.

3. Why does Linneman believe interest rates are unlikely to remain this high?

The 10-year Treasury is at its highest level in 25 years, which he views as an abnormal rather than permanent condition. Higher oil prices have contributed to inflation, but Linneman argues that even if oil remains elevated, its year-over-year inflationary impact eventually disappears once prices stabilize. He expects inflation to cool and believes rates should ultimately follow, although he is less confident about when that will happen.

4. What should real estate owners facing a near-term refinancing consider?

For owners who do not have to sell, Linneman favors buying time rather than exiting in today's market. Although he typically prefers longer-term financing, he currently sees value in shorter-term options that allow owners to hold their assets and preserve the opportunity to refinance later if rates improve.

5. Why is Linneman becoming more concerned about data centers?

Strong demand does not eliminate the risk of overbuilding. He points to unusually high development yields, aggressive leverage, and capital flooding into the sector as signs that tenants, lenders, developers, and equity investors are behaving differently than they typically would. He expects demand to remain strong in the near term but worries that today's rapid expansion could eventually create excess supply.

6. What does a multifamily rent recovery look like in 2027?

Linneman does not necessarily expect large increases in asking rents during the first half of the year. Instead, he sees declining concessions as an early sign of recovery. As properties lease up and renters have fewer choices, incentives such as one or two months of free rent can disappear, producing meaningful income growth even if face rents remain relatively unchanged.

7. Why is equity becoming a bigger challenge for multifamily owners?

Debt remains available, but higher borrowing costs can reduce the amount lenders are willing to provide, requiring owners to contribute more equity. At the same time, Linneman sees investors remaining cautious after several difficult years in real estate, making equity harder to raise precisely when higher rates are increasing the amount needed.

8. Is office still an attractive investment opportunity?

Yes, but location and quality matter. Linneman sees improving conditions in markets such as New York, San Francisco, and parts of Charlotte, while other markets and submarkets remain challenged. Unlike a few years ago, capital is available for strong office opportunities, but investors still need to be highly selective about what and where they buy.

9. What worries Linneman most about the economy right now?

The Federal Reserve is his biggest short-term concern. He believes monetary policy is moving in the wrong direction and worries that the effects will reach the economy with a lag. By contrast, he views the U.S. economy as highly resilient and believes it has continued to withstand geopolitical shocks and other economic pressures.

10. Where would Linneman invest in commercial real estate today?

He favors apartments in high-growth markets where new construction has slowed dramatically, pointing to Austin, Nashville, and Charlotte as examples. Rather than trying to predict exactly when rents accelerate, he would invest with a seven- to 12-year perspective and give the supply-demand imbalance several years to translate into stronger rent growth.