**Cox Castle Podcast: Economist Ken Rosen Sees Positives and Negatives Heading into 2026**
Heading into 2026, there are both significant opportunities and notable risks impacting the real estate market, according to economist Ken Rosen. Speaking on the inaugural “Coffee with Cox Castle” podcast, Rosen, chairman of Rosen Consulting Group and the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley, shared his insights on market trends and economic forecasts with Cox, Castle & Nicholson partner Morgan L. Gallagher and real estate department chair Matthew A. Wyman.
Among the positive developments Rosen highlighted was the long-term impact of tariffs, which he believes will drive a return of manufacturing to the U.S. He also pointed to the extension of key provisions from the 2017 Tax Cuts and Jobs Act—including the potential exemption of tips from taxable income—as favorable policy shifts for the economy.
Perhaps most consequential for real estate, Rosen noted, is the removal of many regulations and capital requirements implemented after the 2008 financial crisis. “Financial institutions are going to have over $2 trillion more capital with reduced capital requirements for lending,” he said. “That will help real estate.”
On the downside, Rosen warned that changes in immigration policy could have a detrimental effect. Legal immigration, traditionally a key growth driver for the economy and the real estate industry, has been curtailed. An estimated 1.5 million undocumented immigrants have voluntarily left the U.S. amid increased enforcement. “This is disrupting immigrant communities all around the country and they’re important to our labor force,” Rosen said, adding that this trend will likely decrease demand for housing and retail in major cities.
Looking ahead to 2026, Rosen projected that U.S. economic growth will slow to approximately 1.4%. He also forecasted that the federal funds rate could rise to 3.5% this year. With 10-year treasury yields hovering around 4%, Rosen expects them to climb to 4.5%, citing the $2 trillion federal budget deficit as a key factor that will put upward pressure on interest rates.
Rosen placed a 30% probability on a U.S. recession and a 10% chance of a “worst-case scenario” characterized by inflation combined with a weak economy.
When asked about commercial real estate sectors, Rosen identified data centers as the only sector currently experiencing “very strong demand.” He explained, “You just can’t get the resources to build them fast enough to get the power, and so it’s in a huge boom.”
Other real estate asset classes are generally in balance between supply and demand, leading to rent growth at or slightly above the inflation rate. Rosen mentioned coastal central business district (CBD) apartments, Class AAA office properties, and grocery-anchored retail as stable performers. However, he expressed concern about overbuilding in sectors such as Sun Belt apartments, logistics properties, and life sciences facilities. “New construction is plunging,” he said.
Wyman referred to “bifurcation” in the market—a term Rosen agreed with. “The triple A office buildings are doing great, but the B and C buildings are doing very poorly,” he said. “Apartments in the coastal metropolitan areas are mostly performing really well, yet the Sun Belt and Mountain States are seeing declining rent and higher vacancy rates. So bifurcation is the big thing.”
