Peaks & Portfolios
Market volatility.
Geopolitical tensions.
Regulatory changes.
Interest rate fluctuations.
Rising construction costs.
Tightening debt markets.
The list continues…
Navigate the rugged terrain of today's ever-evolving commercial real estate investment landscape with a 360° view from the top. Peaks & Portfolios: Presented by PEG Companies summits a new peak each week, exploring current events and headlines, trends, issues, and opportunities impacting the CRE investment space. Scale to new heights in your investment journey with host Rachel Oh and leading experts as they trek toward the promise of prosperous portfolios here in the Mountain West region and beyond.
Tune in now and elevate your CRE investment game!
Peaks & Portfolios
2025 Economic Outlook: Insights from Cushman & Wakefield
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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.
Welcome to Peaks and Portfolios presented by PEG Companies, your go-to podcast for all things commercial real estate investment. I'm Rachel oh, and together we're diving into current events, trends, issues and opportunities impacting the CRE investment space, from dissecting the latest market moves to sharing insights on today's commercial real estate landscape. It's time to maximize portfolios here in the peaks of the Mountain West and beyond.
Speaker 2Okay, everyone, welcome, welcome to 2025. I cannot believe we're finally here. I feel like 2024 was a long year a great year, but a long year, and so, anyway, we're so grateful for you all to join us here on Peaks and Portfolios by Peg Companies. I think it's very apropos that we're kicking off 2025 with James Boniker, who, for our listeners, you may recall, he was our first guest last year as well, so we're so grateful that he was able to join us, I guess kind of fresh off of marriage-ish maybe, maybe not, but welcome, james. How are you?
Speaker 3I'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 both newlyweds, so we had a lot going on in our lives, right.
Speaker 2Yes, yes, james got married in August and I got married in November, so we were just trading notes. So 2024 was a good year for sure. I mean, I don't know if all investors may think that same thing, but at least it was good for the two of us.
Speaker 2Okay, just a little bit about James. He is a senior economist with Cushman and Wakefield in their global think tank and he is just. You know, we really enjoyed our first conversation. He shared with us a little bit about the economy and some predictions, and so we're bringing him back as we, as we look into 2025, maybe a little bit of a recap on 2024. But you know, he has a unique perspective and that's all he does is think about this, so we really want to tap into him and and get some more insights. So, hey, james, I'm going to just throw a little thing at you. We I heard a lot about, you know, coming off of COVID and whatnot. People talked about surviving until 2025. And I'm just curious is it a survive until 2025 mentality still, or is it a thrive in 2025? What are your thoughts?
Speaker 3I think it's a little bit of both, depending on your perspective, depending on what asset class you're exposed to, whether you're on the investor side or the leasing side. I think that very clearly from where I sit and really across the board for commercial real estate, I think the optimism has really started building over the last few months. I think it really started with that first Fed rate cut that we got a few months ago, that big 50 basis points and a bit of a false start maybe, because now I'm sure we'll get into that with the outlook for going forward, but I think that was a crucial moment. I think that investor sentiment really across the board, like I mentioned, has been positive and we're seeing more transactions, you know, not just being conceptualized but being acted on, which is, you know, obviously, what we're all here for. So you know sentiment is definitely positive and even in some of the sectors of commercial real estate that have been struggling, things are starting to turn. So you know we're pretty positive on the outlook for the year ahead.
Speaker 2Yeah, I would agree. You know I went to San Francisco. My new home is now in the Bay Area. We went there for Christmas and I don't know if you've been down to Union Square lately, but it was hustling and bustling and I think the last time I had been there I kind of feared for my life and it was clean and there were people you know running about, so I felt very hopeful. I feel like that could be maybe a little bit of an indicator of what's to come.
Speaker 3Well, that's great. Sorry, that's great to hear. I know that I have not been out there, but you know reading the paper and what you hear everyone's got their own story right about how bad things were. So I've heard similar lately about how things are turning around and people are out and about and shopping and going to work.
Speaker 2So yeah that's great.
Speaker 3That's great.
Speaker 2Yeah, no, no, it was. Even the highways were busy, which again we didn't see much of that either. I think Mondays and Wednesdays were the days that sorry. In the past, when I go on a Monday or a Friday, the roads were really open and it was actually more busy, which just means more people, I think, are actually going into the office than before. So again, my little tiny experience, but I feel super hopeful and I really feel like that's kind of what we're seeing. But kind of piggybacking off of that, let's talk about some of the sectors in real estate that have been most hard hit and where you folks are seeing things. So let's talk office. I mean, san Francisco is all about office. Just curious your thoughts or what you guys are seeing in terms of vacancies, lease rates. I mean, is it more of the same? What are we looking at?
Speaker 3No, so we've definitely started to see that more leasing is taking place. I think that you know, a few things happened over the previous few years, right, obviously, the big disruptor right is hybrid work, and you know, 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 more gradual evolution of how hybrid work fits into total workplace strategy, and that's something that obviously is a big factor and something that we watch very closely. But even within that kind of segment, it's different for different companies, depending on your size, depending on your sector, depending on geographically. So it's really not a black and white question. I think there's a lot of nuance there and it's something that's just going to be evolving.
Speaker 3But I think the thing that you know a lot of people forget, right is I mean, bay Area is a great example.
Speaker 3Right, there's been a lot of tech layoffs over the past few years, which is a little bit ironic given all the hype around generative AI and a lot of these new technologies, right, but workforce counts have been down in that sector.
Speaker 3The finance sector hasn't been adding a lot of jobs, and even other office using sectors haven't as well. And so when you think about kind of how we used to think about the office sector, it was all about jobs, jobs, jobs, right. And so you know that's still a really big factor given all the economic uncertainty that's been out there the past couple years. And so you know, I think, with you know the economy holding up strong, you know a new administration coming in giving some optimism to some sectors, I think that that's been a positive as well, where we are starting to see that firms are acting on leasing decisions more proactively, I should say. I mean Manhattan, for example, had their best leasing quarter following the pandemic in the fourth quarter of 2024. So a lot of people, new Yorkers at least, like to say that as New York goes, so does the rest of the country, and so I think that's a very positive indication for where things are headed, that you know the bottom is here and things will start to turn around.
Speaker 2Yeah, yeah, oh my gosh, please, please, let the bottom be in our rear view mirror and everything up and onward.
Speaker 2Let's talk a little bit about that. Until you mentioned Manhattan as kind of a leading indicator for the rest of the country. You know, what we tend to see is that there's more vacancies in older properties as those who are now leasing they're moving towards higher quality, newer builds. Does that continue to hold throughout the country? Again, that's in our perspective, kind of from our Mountain West markets, but I'm just curious if that's across the board as well.
Speaker 3Absolutely. That's one thing that's very consistent. No matter which market you look in across the United States is that flight to quality is a very real thing. Interesting stat if you just kind of split up the office market nationally and look at you know a third, top third, of the buildings based on their the lowest vacancy rate. They're essentially fully leased and you know a lot of the characteristics that they share are what you might expect, right. They have great amenities. Of the characteristics that they share are what you might expect, right. They have great amenities. They're in prime submarkets and even within the submarket level. The best blocks are the best kind of neighborhoods and so you know that's absolutely a thing that's going to continue. The issue is or not really an issue, but a feature of that is that we're running out of that sort of space, right. If you think about the construction cycle, nobody's been lending on new office construction for a couple years now and so we're not building more of it and what's there is pretty much fully leased.
Speaker 3And so I think the big question for 2025 is what happens to kind of that second, third, fourth tier of across the quality spectrum, right and right and firms. If they're in expansion mode, they're going to have to go somewhere, but they're going to be very selective, and so I think really, what we're going to start to see materialize is landlords who have invested in making the proper renovations and doing whatever they can really to entice tenants. They're going to be the winners of the next few years, right?
Speaker 2Yeah, I tend to see that in our market as well, and again, I spent more time in the Bay Area, and so we're starting to see that, and I think that's again a strong indicator of resuming work, more of a hybrid approach as opposed to staying all at home. And then again we keep hearing about all this AI and this digital economy and cloud computing and all of that. So let's just talk, let's kind of move into that. Our office used to be the real estate that everyone was sort of clamoring for. I hear all about data centers. Any updates or thoughts on data centers as we enter into this new year?
Commercial Real Estate Market Insights
Speaker 3Yeah, it's going to continue to be hot. The demand is just insane out there for data centers and just the ability to have that cloud computing. Every big tech company is looking for it, and even if you're not a tech company, you need that cloud space to store your data and to do the analytics that virtually every large company and even smaller companies are investing in, and so the demand is not the question. That's going to continue to go on an upward trajectory. I think the supply is really the limitation now, and specifically power supply too. That's a big issue right where there's hotspots, where they've got the power to support that type of computing, and so I think you'll start to see more investment around that infrastructure. That will help supply over time, but really for the foreseeable future, I think it's going to be a very, very tight market to get into, and you'll see rents continue to go much higher.
Speaker 2Yeah, no, I am, you know I didn't. I'm not so familiar with nuclear power, right, but it just seems like our grid is overtaxed, as is. There's only so much more that it can handle, and we're going to need to find alternative power sources. So it'll be interesting to see. At least that's my understanding. With data centers, the big thing is is where do you, how do you support the data centers? Right, where is the power source? And if our grid is maxed out, then where do you go? And solar can only do so much and there's only so much wind, apparently so um so it does seem like we're gonna have to figure that out.
Speaker 2So, to your point, infrastructure, investing in all that, that'll be really interesting. Um, you know, as we, we, we kind of hit on it at the very beginning too, it is. It's a new administration, you know. The election results are, that is now behind us and we now have a new presidency coming in. How do you think that's going to affect the next four years?
Speaker 3It'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 big hurdle, because what nobody wants is kind of that, you know, weeks or months long waiting period of Supreme Court trials and all that kind of stuff where nobody knows what's really going on, because that just stalls all types of investment out. So, you know, fortunate for the economy, for commercial real estate, that was a decisive result. You know, obviously, the optimism initially, I think, if you look at the stock market anyway, I think a lot of that really stems from a few things in that, you know, tax policy is likely to be more favorable, deregulation in certain sectors might create more M&A activity and just less regulation is just generally better for many industries, and so I think there's some optimism behind that. I will say that it's not all good news, at least from you know, kind of an objective economist perspective, right, because I think the two big things that are going to be challenges right are the tariffs, which at this point it seems very likely that there's going to be more tariffs on products coming into the United States, which raises costs for those importing them and ultimately affects consumer prices too. So that's the one big thing. At this point there's more unknowns than knowns the magnitude, the geographical scope. We just don't have much information on that. So that'll be something to really carefully watch, with implications on industrial retail especially. Implications on industrial retail especially.
Speaker 3Second big thing is immigration and the potential to possibly have some scope of deportation of people who are in the United States, which is a really big factor. Because if you look at over the past two years, two, three years or so, really the primary source of labor force growth has been from foreign-born workers. So you know that's partially legal, partially illegal immigration, but the fact of the matter is that's what's been supporting the labor force growth that we've gotten and that obviously drives economic activity. So that'll be interesting to watch. You know, I think that that could have implications on inflation and just hiring strategies and the ability for companies to expand. So those are kind of the two caution points that I'll be watching. But on the flip side, as I mentioned, there is some optimism around. You know tax policy, deregulation.
Speaker 2Yeah, yeah. No, there's no perfect right solution, there's no perfect administration per se.
Speaker 3But yeah, and I, I I will add you know we we've done some studies on this. If you look back over time and whether you look at a commercial real estate investment transaction volume, or whether you look at leasing activity, uh versus in, you versus in Republican versus Democrat administrations, there's almost no correlation either way. Right? The underlying economics are what drive our industry and so I think on the margin there might be pros and cons depending on where you sit, but for the market as a whole not really going to influence things all that much.
Speaker 2Yeah, interesting. Ok, I look and see, I feel like it's been in kind of a again, that whole sentiment of, like you know, stay alive until 2025, which I think it's. Just, you know, people try to find words that rhyme and whatnot. And then when we think about this thriving in 2025, what are the sectors then do you think are poised for most growth in 2025?
Speaker 3Well, you know data centers, as we mentioned, a lot of these alternate, you know what we'd call alternative assets. They're not such a niche product anymore, right, because there's been so much institutional and private capital poured into them. But, you know, I think, data centers being one, I think of the you know the core, the big ones, right? I think that really, really, across the board, I mean, multifamily has had a tremendous year in 2024. And you know if anyone out there 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 multifamily space, and so I think that's really going to be a strong point for 2025, given especially if the economy holds up pretty well, like we expect it to, so multifamily, I think, will continue to do really well.
Speaker 3I think that the industrial market is pretty interesting because over the past few years, yes, demand has fallen off somewhat, given just some of the astronomical rent increases that we saw over previous years, but it's really been more of a supply side story where we've seen vacancy go from around 3 percent nationally to about 6.5 percent.
Speaker 3So it's a pretty big job, but 6.5 percent isn't isn't all that bad and we're still seeing that there's a lot of demand out there for industrial space as companies just fill out their supply chains and e-commerce continues to grow. So multifamily industrial, I think really positive on. And then I work very closely with our retail team and I know that I think people are starting to catch on that retail is actually a pretty good sector to invest in. We've seen a pretty good amount of activity in the shopping center and even in the mall space, you know, for redevelopment projects and things like that. So, and retail, contrary to many of the other asset types, you know, haven't been building any more of that really for the past decade not a lot of it anyway. So that's come back very strongly and even in office not to try to sound like the ultra optimist, but really I think there is a positive story there. So you know, 2025 is looking pretty good across most of the sectors.
Speaker 2Yeah, no, I think that we're seeing that as well, and you know one of the areas that we are also quite. I mean we're not in data centers, we're not in industrial. Really, I mean it's really multifamily. You know a sliver of office. But there is a sector that we are quite invested in and that's hospitality, but not full-service hospitality and more that select service, limited service hospitality. And just curious if that comes across your radar at all.
Future Trends in Real Estate
Speaker 3It does and it shows up really in a lot of mixed use. And even I think one thing is interesting, just to go back to office for a second. But if you think about these modern offices that are doing really well and attracting tenants at high rates becoming more of a hospitality vibe, right, you've got excellent food and beverage options, you've got concierge services, you've got interesting fitness ideas in there like golf simulators and things. So I think we're just seeing hospitality in general, the broad sense of hospitality, enter into more types of properties and that's just a function of where people are spending their time and it ties back a little bit to this hybrid workforce where maybe people are getting some of their leisure, entertainment and their necessities in the middle of the day and at different times and in different places. So I think you know hospitality in general is something that's evolving and I think that you know we're seeing some interesting ideas definitely catch on over the last couple of years.
Speaker 2Yeah, no, I love that you say that we actually again the two primary food groups that we service are multifamily and hospitality. And we are now seeing as multifamily becomes more competitive right Like there's renters out there and you know, come to our building versus you know the one down the street and we are finding that because we straddle the two sectors, we're starting to kind of mix the two, meaning offering more hospitality-esque type offerings at our multifamily and there's going to be more to come.
Speaker 2But yeah, no, we're. You know even to the extent that, like you know, you have one global brand, a renter could be in several different markets and you know you don't necessarily have to sign a new lease each time. Now that you migrate from market to market, you know you could be with the same multifamily brand, kind of like a hotel like Marriott. You know loyalty or Hyatt loyalty, but you know, move from market to market with no, you know, lease renewal you could just transfer. And then you know, to the extent that there are food and beverage offerings, you know, in the common space areas, and then all the amenities that we build out. Like it's interesting, we're starting to morph the two a bit as we are trying to be more competitive and really stand out in the market.
Speaker 3No, that's spot on. That's great to hear, and I think we absolutely see that trend continue. Actually, somewhat poignantly, I'm in my apartment building here in Boston and I'm sitting in the conference room, and if they didn't have the conference room here, I would have to go into the office every day. God forbid.
Speaker 3Don't tell the office people that I know, I know, but it's just so nice to to have that sort of uh, mix of you know, think about just how people spend their day and all the things they do over the course of that day. To have them all kind of intertwined in this seamless way, I think, is really the future of where we're going here.
Speaker 2Yeah, yeah, no. I think it's interesting that you mentioned that. Um, you know there's we talk about multifamily a lot. It's, I think, the most, one of the more resilient investment classes out there, at least in terms of commercial real estate. And something that we've also been dabbling in in the recent years is this build for rent right. So on the single family rental side, whether it be townhomes or, you know, freestanding, you know homes if you will, with, you know freestanding, you know homes, if you will, with little gardens and you know unattached walls, so horizontal living. But costs have been, you know costs and interest rates are where they are. So development has definitely slowed. How does the BFR single family rental portion of multifamily, how does that come up on your radar? What have you guys been seeing there?
Speaker 3Yeah, I think it's extremely attractive because if you look at the situation that we're in today, right, mortgage rates are still about 7%. Again, very, very limited inventory out there, and if you think about the potential buyers that are out there, it's exactly the type of people you know, maybe who just got married and are thinking about having kids, who don't want to be in an apartment building, that's, you know, they want kind of that family aspect, the community aspect, and I think that built-to-rent single-family rental fits that bill exactly right. Where the housing crisis isn't going to be resolved overnight, hopefully there's some policies that come in place down the line. But you know, in the meantime, I think that, yeah, that's just a very attractive from a demand perspective, given how little supply there is out there right now.
Speaker 2Yeah, yeah, and we're definitely part of that. We've kicked off a couple of development projects, but I'll be honest, it's been difficult to pencil ground-up development still, and it's really just two factors right cost and interest rates. We're seeing a little bit of a reprieve, but not enough to make a dent. So then you switched acquisitions. We've got some dry powder to spend, but then you know no one is selling at cap rates that make sense either.
Speaker 2So it is interesting how it just continues to feed off of each other. I just don't know. I'm just I'm wondering where things will head as demand continues to rise, supply remains constrained.
Speaker 3Absolutely. I mean from a development aspect. It's still pretty tough out there, regardless of how great your narrative is, you know just because of where interest rates are, so you know that's likely to get better. I think that you know we've seen interest rates come down a little bit, maybe not as much as we all would have hoped by now, but still moving in the positive direction. And you know, I think as long as the fundamentals you know income, rents continue to hold up and improve which we believe they will, right, I think it's going to get easier.
Speaker 3We have started to hear over the last few months that you know, lending community especially a lot of the banks 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 the banks 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 a gradual process. I don't think we see this, you know, massive development wave coming anytime soon. So you know you just got to, like you said, just really have something to pencils and you know, wait for those interest rates to come down and hopefully things will pick up steam a little bit.
Speaker 2Yeah, you know, I know you mentioned that deal flow has picked up, transactions have picked up. You know it's the start of the year. There's a lot of the big conferences kick off in January and I think you know my team is going to all of them across the country in the different sectors, and we're, I know one of the big things is the transaction volume going to continue to uptick. Is it really like, are we really going to see more deal flow and, you know, more exchanges of hands and monies and stuff? And so I'm just curious you know what you're seeing there, what you're thinking about that, because we would love to acquire and it's still not necessarily a slam dunk.
Speaker 3Yeah, it's again. It's been a bit more of a gradual process than I think a lot of people expected, but it's really something that you know. Internally at Cushman Wakefield we've been advising and advising our clients is that you know interest rates aren't going back to, you know, 3% overnight, and you know you really just have to be strategic and you know act decisively when the opportunity presents itself. So, but you know, more generally, yes, I do think we'll start to see transaction volume pick up. It's not going to be this V-shaped recovery though that I think you know we'd like to see. So it's really just a matter of picking your spots and I think that ultimately, by the second half of of this year, that we'll start to see some real, real traction along those fronts, just even though interest rates aren't coming down as quickly as we'd like.
Speaker 3You know there's just a lot of folks that have been on the sideline for so long now that you know. I think the realization, ironically, that interest rates are going to be higher for longer, it's like all right. Well, we can't bet on that. You know this is the new reality and so if we want to make our investments, we might have 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'll start to see things pick up, but you know, not necessarily because interest rates are going to go a lot lower.
Speaker 2Yeah, yeah. Well, I mean, if you look at the treasury yield and where that remains and the ability in which to like how much more, how much risk our investors are going to take, I think that'll continue to evolve, as you mentioned. You know what they always say real estate's a long, long play anyway.
Speaker 2So Absolutely Yep and you know what they always say real estate's a long long play anyway. So absolutely OK. So let's then shift a little bit. Are there specific regions in the US or globally for that matter that you think may outperform in 2025?
Speaker 3Yeah, I think, again, it depends on the property sector a little bit. But just from, you know, let's just talk about, you know, maybe multifamily just as an example. I think that you know what we saw in 2024 was really this shift back away from the South and the West and specifically a lot of those hot Sunbelt markets where construction was just going up faster than you could watch it. We really saw that a lot of Midwest and Northeast markets, secondary markets that have some cost advantages to your bigger cities, really started to outperform and I do think we see more of that in 2025. And I think economically that really ties in well. That's why I use multifamily as an example, because if you think about the drivers there, you know it's about jobs, it's about migration and I think that really reflects what we see regionally, where you know some of your smaller secondary markets.
Speaker 3You know one thing is that over the course of the pandemic and even following, people had started to kind of shift out to smaller cities and even within cities, to the suburbs, and we started to see that that's slowed down a little bit as it relates to cities. As you mentioned, san Francisco looks like maybe it's coming back a little bit, and so I think that's a great example where, in addition to kind of these smaller Midwest markets within a lot of gateway cities, I think areas that have been disadvantaged because of return to office and because of some of those earlier migration trends I think we start to see things pick up there as well. So that's exciting. We're seeing more interest from public leaders right in revitalizing their cities and getting people there, whether it be to live, to work or to play, and so I think that you know, over the course of the next couple of years, we'll start to see some really strong activity in downtown areas.
Speaker 2Yeah, yeah, no again. One little shopping trip. I don't know if that is the best gauge of return to everything, but it was super encouraging. The last time I had been there it was really disappointing. So it was nice to see at least a ton of shopping and, you know, very clean streets and just a lot of robust activity and clogged highways. It was just a little bit. It took a minute to get into town, which was great, I feel like it was.
Speaker 3Traffic is great, right, yeah.
Speaker 2Traffic is a good indicator. I mean, something's happening, and I think it's the first time I was like, oh wow, I'm actually happy to see traffic. So okay, so curious. Then, what are some headwinds or some of the bigger risks that you see as we go into? I mean, I know that we try to be optimistic and as an economist, you have to see both sides and I think you're probably trained to be more pessimistic, if anything. Where are some headwinds that you potentially see that could be problematic as we head into the new year?
Speaker 3Yeah, I think that, on a macro sense, some of the uncertainty that we talked about around tariffs and immigration policy I think that those both are going to be a factor, whether or not it falls more on the corporate side or the consumer side. Either way, I think that there are going to be some challenges there and it's not going to affect everyone equally. I think that you're seeing companies really ramp up their lobbyist pool and try to position themselves well for whatever policies come down the pipe. So I think those are going to be challenges in a macro sense. On the interest rate side, I think that, as we talked about, if you look at what's happened with the 10-year Treasury over the last three months it's up about 50 basis points, and over the past six months it's up a full percentage point, even though the Fed's lowered rates four times now. So I think that is a challenge, just given how heavily leveraged our industry is.
Speaker 3And so if you think about you know all the maturities that are out there on the commercial real estate front, if you are in a position where you need to refinance, it's going to be more of a challenge than maybe you expected. And so you know, I don't think it's the type of thing where we see this massive wave of defaults and delinquencies right, because you're seeing banks and other lenders just be pretty lenient with that, for the most part Mm-hmm, but you know we will see more distress and ultimately, you know that can be a bad thing, obviously if you're the one with a distressed property. But it can also help move the needle a little bit as far as price discovery, which you know, as many folks in our industry know, there's still a bit of a disconnect, you know, just given where interest rates are and some of the fundamentals. So I think, ultimately, those are some of the challenges that we're looking at and that's really, you know, across the board, more so for office on the on the distress side, right.
Speaker 2Yeah, yeah, we. I've heard, both internally and then externally with different groups, that on one hand it's it remains a stress right to those who hold offices if they haven't already somehow disposed of them, and then for others it's interesting how banks are willing to work with groups and just the default rates aren't, as anywhere near where we thought they might be, and so that's office. That also includes maybe some multifamily that's coming into that refi situation. So what I think was interesting is that now banks are sort of at least in the conversations I've heard willing to sort of work with their borrowers, hoping to maybe see some reprieve in the economy to help, as opposed to just getting everything off their books. I mean, I think that big first wave was what had to be done, and then, surprisingly, I've heard 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 you mentioned.
Speaker 3Yeah, absolutely, although you know I will say that you know, just having a view into what our transactions teams are working on, there's quite a bit of capital out there that's looking for these opportunistic deals and so they're having some success with getting those deals across the line. Of course, the price declines versus five, 10 years ago are quite substantial, but you know, that's where we are in the market today and that's what is ultimately needed to kind of work through a lot of this distress. So I think you'll see more of that and that's a positive that we're starting to see that happen in a more meaningful way.
Impact of Technology on Real Estate
Speaker 2I think so and, again, it'll be so interesting to see what happens as we continue through 2025. Question that I get here and there and that's just with the advent of technology and sort of you know, ai driven type approaches and the way we review deals and things. I'm just curious if you're seeing any of that affect real estate decisions, investment decisions, maybe at Cushman or elsewhere. Technology is just, it's evolving. Even I can't tell you how many people 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 AI anywhere near like I should, but curious if you're seeing any innovations there.
Speaker 3Yeah, I think a lot of it, so far at least. What I and at least my team has been using is more you get this 30-page report right and you want to know what the key takeaways are, because nobody has time to read lengthy reports of so much information out there. So I think automating tasks and those kinds of things is really where we see it most notably right now. I think that it'll be interesting to watch you know down the road where you know you can query a data set and actually have them recommend. You know strategic decision based on how you communicate with them. I think that's probably a few years away for most people. So right now it's more just an efficiency gain, which everyone wants right. That makes us all more productive and allows us to focus on more high-value-add activities, and so it's great. At the moment I don't think we're seeing too much. That's, you know, revolutionizing. You know the way that people transact and look at deal structures completely, but it's more of an aid at this point.
Speaker 2Yeah, okay, I think that's fair.
Speaker 3Future is bright, though.
Speaker 2Yes, definitely. I mean the fact that I can just have AI. You know, summarize meeting notes is great. I don't have to do it myself, so that's wonderful. I love that.
Speaker 2Okay, so you know, we're kind of heading 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 of 2024, which I think we all agree had plus and minuses. We now have a new president, a return to a president back into office. We've got this looming sort of potential geopolitical hotbed with US-China relations and all the different tariffs, and so that, could, you know, increase pricing. We've got an interest rate situation that has had some reprieve, but we're not at rock bottom and nor will we be probably for a while, if ever again in history. Costs are where they are, demand is where it is. Supply remains to be seen. Looking to 25 and beyond, just curious where you know what your sentiments are to investors today and what you think that they should be looking for or being on. You know, being mindful of what would you? You know, what would you tell folks as they kind of look into 2025 and beyond?
Speaker 3Well, I think, ultimately, what I always come back to is the fact that the United States is the premier destination for investment, not just commercial real estate, but across the board, given our strong democracy and just the financial institutions and the trust and the dollar being the reserve currency. The list goes on and so I think that we're definitely seeing more foreign capital coming into the United States. I think that there's going to be a lot of capital chasing limited resources, and so that's why we're pretty optimistic. I think the challenges you have to watch are just for turning points in the market, right A lot of things that I look at from day to day if there's an oversupply problem or just a shift in other dynamics in the market. And right now I think that for commercial real estate, as I kind of opened with, I think that across the board, things look very positive. You know, obviously everyone's looking at the same kind of data and having similar theses, and so I think it's going to at some point here I think it's going to turn to a pretty competitive investment market, and even on the leasing side too for many of these sectors. So that's why we're pretty optimistic, and obviously there's always going to be the risk factors out there interest rates, we talked about.
Speaker 3Geopolitics probably worry me more than anything just because it's so unpredictable and, you know, can have a pretty big impact. So always something to watch, but that's something that everyone really has to deal with and, at the end of the day, like I said, the United States is, from an economic perspective, from a financial, political perspective, looks pretty good compared to the rest of the world. I mean, you look at China, some of the issues their economy is having over there. You look at certain parts of Europe Germany is having a tough go at it. You look at certain parts of Europe, germany is having a tough go at it. And so, ultimately, I think that the United States is going to come out very favorably and we're going to start to see things turn here in 2025 in the right direction.
Speaker 2Yeah, 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 newfound optimism and it's great to hear that you echo that as well. You know, I think.
Speaker 3Yeah, I think we've talked ourselves into Thrive in 2025.
Speaker 2Yeah, I like Thrive in 2025. These past four years, let's just put that behind us, let's learn from it and and let's move forward. 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, but having you kick off our 2025, I think is is is so refreshing and great, and so it's good to hear from you. Congratulations again on your recent nuptials, and we're hoping that maybe we can make this an annual event. So really appreciate your time, james.
Speaker 3All right, we'll talk in 2026. Best wishes for this year, thank you.
Speaker 2Thank you. Okay, so thank you from the peaks of the Mountain West. We appreciate you all joining in. This has been Peaks and Portfolios by Pet Companies.
