As we approach the end of Q2 2024, it’s time to reflect on the past and anticipate what lies ahead. On June 19, 2024, the Walker Webcast hosted by Willy Walker (Chairman and CEO of Walker & Dunlop) from Chicago featured guest speaker Peter Linneman (Founder and President of Linneman Associates). The two experts discussed trends and insights from their attendance at the Bennett Zell Classic Roundtable event.
During their conversations with other industry leaders, both Walker and Linneman noted two key takeaways. First is a general consensus that interest rates will remain high for an extended period. However, Linneman disagrees with this notion as he predicts a decrease in rates later this year. Secondly, there is an abundance of capital available for real estate projects but it remains on the sidelines due to lenders’ reluctance to take risks.
The discussion also delved into various sectors within real estate with a focus on office spaces. One topic was Kastle Systems Data which measures space usage through card swipes; however its accuracy has been questioned by building owners who have reported higher occupancy levels than those recorded by Kastle Systems.
Linneman also shared his calculations regarding office vacancy rates which suggest that supply pipeline plays a significant role in determining vacancy levels over time rather than just demand growth alone.
On another note, industrial properties are currently performing well despite experiencing increased supply levels compared to previous years where vacancies were extremely low at around 1%. This normalization towards about 3% vacancies is considered healthy for economic efficiency according to both experts.
The shortage in single-family housing was also addressed during the webcast as approximately three million homes are needed within ten years just to keep up with population growth; however challenges such as NIMBYism (Not In My Backyard) may hinder progress along with potential down cycles where capital may become scarce temporarily causing delays or cancellations in construction projects.
Linneman also predicts three rate cuts by the end of 2024 despite the Federal Reserve’s previous statements indicating otherwise. He believes that their current methods for measuring inflation and determining rate cuts are flawed and will eventually lead to a decrease in rates.
In terms of real estate projects, Linneman advises moving forward with caution as securing capital may be difficult due to lenders’ aversion towards risk-taking. However, once market conditions improve, there will be an influx of capital available for such ventures.
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