Marcus & Millichap’s John Chang | 2026 Economic Outlook

We are going to continue on with the morning. We have another fantastic speaker. I can see him, uh, in, in the backstage. So John, we're going to bring you up here in just one minute. But man, this is an absolute rock star. I can't believe we have this guy. This— again, the point of this day was to bring the data and information that the largest institutions, some of the largest capital allocators in the country get access to in order to make decisions and bring that to the individual investor. And so that is why I'm so, so excited to bring on John Chang. He is the senior vice president and chief intelligence and analytics officer of Marcus Millichap. That's not a really— it's not a small firm. John leads Marcus Millichap's research and market intelligence platform, providing data-driven insights that guide client decisions across all major commercial property sectors. So this is our CRE guy. A seasoned analyst, a frequent industry speaker. John is recognized for expertise in economic real estate and capital market trends and is regularly quoted in both trade and mainstream media. It is a privilege to bring to the stage today, John Chang.

How are you?

Hey guys, how you doing?

John, welcome. Yeah.

Hey, great to see you guys again. That's, uh, man, when you guys say that stuff, it sounds impressive. I'm excited to do this.

You know, I'll say John is one of the guys I listen to the most, just has the clearest insights and really makes bold calls and incredible track record. One of the, one of the top voices in our space, I believe.

Yeah, absolutely.

All right. So I'm going to talk a lot about what I'm looking at in the economy, some of the big drivers that are shaping commercial real estate today. I'll dip down into the 4 main property types a little bit, talk a little bit about what's happening with apartments, retail, office, industrial, both from a fundamentals as well as a transactional standpoint. So I'm going to jump right in here with probably one of the greatest challenges we have, which is the uncertainty. Right now we are operating in a time when you never know what's around the next corner. I mean, we have the issue of Fed independence. We have, uh, what's happening in Greenland and Venezuela. We have AI, the tariffs out there, of course, and, and, and, uh, immigration enforcement. So these things are really driving a lot of the dialogue and a lot of the, uh, mindshare for investors and businesses alike. And that creates some challenges when we look at the Uncertainty Index, which is assembled by a couple of really smart people and they track basically the media and how much uncertainty is out there. When you look back over time, you have things like US government shutdowns, the pandemic, but nothing went to the levels of when the tariffs were announced last year. That spiked uncertainty to a whole new level. And since then, it has come down quite a bit. But the issues that we're dealing with in the last month, you know, geopolitical issues, trade tensions, fiscal gridlock, these things have started to bump it back up again. So I think we're in a new normal of uncertainty and people are adapting to that, which is great. But it does make business decisions and investing decisions much more challenging. Now, when you look at the economic growth, it is still positive. And a big piece of that has been the huge investment into AI and data centers. Uh, there's no real solid number on what percentage of economic growth that drives. I've seen various numbers out there, but it is significant. Uh, the good news here is that none of the major economists are predicting a recession in 2026. Uh, you can see that the consensus forecast for the year among the blue-chip analysts is 2.1% growth. Goldman Sachs up there, 2.8%. Morgan Stanley down at 1.7%. So we're somewhere in that 2% range for economic growth with a lot of the tailwinds coming from AI and data centers. Nonetheless, consumption is still positive. And so as a result, the macroeconomic conditions that we're operating in remain relatively sound. Now, one of the greatest challenges we've been experiencing has been job creation and Uh, when you look back at last year, we added 584,000 jobs, but in the first 4 months of the year, January through April, we were adding an average of 140,000 per month. And then from May, after the tariffs were announced, from May through the end of the year, the average number of jobs being added fell down to about 11,000 per month on average. And we had a few months there that ran into the negative territory. So The employment market itself has become a little bit fragile. We're seeing a pretty big slowdown. And in 2026, we're forecasting about 300,000 jobs, which is a big step back for the US economy. We were adding, you know, roughly 2 million jobs a year normally. So we've seen a real slowdown there. But on the other side of the equation, the unemployment rate, it remains pretty stable. It's at 4.4%. And that's a function of both, uh, you know, a reduction in the labor force as well as, uh, a lot of people being able to retain their positions. Now we are seeing more layoffs. These are new headwinds. You know, everybody's seen in the media in the last 30 days or so, uh, Amazon taking, uh, out, you know, 16,000 jobs, UPS planning cuts, uh, Dow, uh, reducing their workforce, Nike. So These are things we need to watch because we have seen a lot more layoffs in the last year than we normally do. And we just got some new JOLTS numbers, the job openings numbers yesterday. I think it was yesterday, day before. And we've seen a real reduction in the number of job openings. It's down to 6.5 million. If you apply the unemployment rate to the workforce, there's 7.5 million people who are unemployed. And if you look back at the last several years, this is the first time, uh, since basically the pandemic and then, uh, well before that, that we have had more unemployed people than we have job openings. So the employment market is definitely shifting, slowing way down. We've seen the young adult unemployment rate rise pretty aggressively. Over the course of the last several months. And that is going to weigh on multifamily demand and some other parts of the economy as we go forward. Now, one of the other things that I was looking at was the breakout of job creation into different sectors. And really at this point, healthcare is carrying the employment market. So while we added about 580,000 jobs in total last year, Healthcare added 709,000, and you also have leisure and hospitality up almost 200,000 and so on down the list. But we have several sectors, including government, which, uh, have contracted. Uh, now that may just be a cycle. Historically, when we've had a drawdown on the government, it usually, uh, you know, slowly, uh, grows back again over time. But the one that I'm watching is professional business services. Because that drives a lot of the rental demand, especially at your top tiers. So we really kind of have to watch how this manifests over the course of the year in 2026. Now, again, we are still looking at job creation. We expect it to remain positive. It's just much slower than what we've seen in the past. When you look around the country, you get a real idea that this is not the same everywhere. You look at Dallas-Fort Worth adding 35,000 jobs forecast in 2026, New York 25,000. Most of the Florida markets are doing fairly well. Charlotte 14,000 jobs, Indianapolis 12K, Phoenix 17K. So when you look around the country, there's really only a few markets in red, uh, where we're expecting to see a reduction of workforce. It's just that Everybody's moving slower than they have in the past. And again, that's going to impact the pace of apartment absorption in the coming year. Some of the other things to keep your eye on, you have the manufacturing index, the ISM Manufacturing Index, which is basically reading on the outlook for manufacturing and whether it's growing or shrinking. Anything on the ISM indices that's over 50 means it's growing. Uh, and manufacturing was below 50. It was in the, in the, you know, 47, 48, 49 range for quite some time. And just last month it popped up to 53. So that might be a positive sign. Services sectors, uh, have been growing all along the last couple of years, the last several years. And, uh, that's getting a reading of 54, which is positive for economic growth and for the service sector growth. Uh, on the other side of the equation over there, small business optimism, uh, that's been ticking lower. It's not in a dangerous range yet. It's kind of in the middle of the road. Uh, and consumer sentiment, uh, another metric that I track, that's the University of Michigan consumer sentiment, uh, has come way down and basically it's bouncing on the bottom there. And historically, When consumer sentiment is high or rising, we see more apartment absorption. And when it falls and it's, it's going down, we tend to see less apartment absorption. So again, that's something we want to keep an eye on. People are a little cautious right now because of the uncertainty, because of the employment climate. And there's questions about what's around the next corner that is weighing on consumer sentiment. And so that could affect spending as well as household formation. in the future. One of the other things that really has been getting a lot of attention in the media is whether we're in a K-shaped economy. And, uh, and then I'm also gonna touch on what's happening with inflation and interest rates. Now, this is something I stole from Mark Zandi. We had him on a webcast, uh, a few, a few weeks ago, and I had a chance to talk with him a little bit. And this is something I've seen show up in the media a fair amount, and it's share of personal outlays. Basically, uh, spending by different, uh, quintiles of the, uh, population. And the top 20% is driving about 60% of the consumption. And the bottom, uh, 80% is on the other end of that, about 40% of the consumption. And they're saying, hey, this has been moving away from each other over the last 20 years, and we're starting to see it really be amplified. And so This is part of the conversation of, you know, are the rich just getting richer and driving all of the economic growth, uh, as, as the, uh, those who are not in the top 20% are driving a smaller portion. But I also looked at it a different way, which was, uh, basically share of assets and share of liabilities. And, uh, on the left, you can see the top 10%, uh, their share of assets is at about 64%, which seems high except for That was pretty much the case from 2014 to 2020. And so the question is, is this truly out of alignment, or is it returning back to normal? By the same token— and I was kind of surprised by this— the bottom 50% of wealth, their share of liabilities is actually quite low. So on one hand, when you look at the spending, it's really leaning to the upper-income segment. But when you look at assets and liabilities, Uh, it really kind of shows a different picture. So I'm not altogether sold on the idea of a K-shaped economy that could produce, you know, ruinous results. I think that, uh, you know, it all depends on how you're looking at the trends. Something else that's been top of mind for a lot of people has been debt levels, and we've seen those surge. You look at credit card debt, record high, $1.7 trillion. Auto debt, $1.2 trillion. Household debt, $18.5 trillion. These are huge numbers. And a lot of people are concerned about the debt levels. But what this does not take into consideration is that people's earnings have been rising at the same time. So if you make more money, it makes sense that you're gonna carry a little bit more debt. So we backed into it and we said, okay, what is the debt as a percentage share of income. And all of these things are reversed and moved back into normal territory. Basically, auto debt is only 5.4% of income. Uh, and it's below the 10-year average. The credit card debt, you know, is at 4%, right in alignment with the long-term average. And household debt is at 60.5%, uh, which is again below the 10-year average as well. So, uh, it depends again on how you're looking at these things. Yes, the headline numbers are, um, can be scary. But when you factor in that people are making more money today, then it really makes a lot more sense. Now, when we look at the next slide, you can see that savings has been climbing as well. And so when you look, you have to include money market mutual funds, right? I've seen a lot of economists go and come out and say, look, savings is way down from where it was. And that's true in savings accounts, but those pay basically no interest. So a lot of people shifted a lot of their savings over into money market mutual funds. So you really kind of have to count both of them and add them together. And from that standpoint, they're up 4.2% on a year-over-year basis. And on an inflation-adjusted basis, they're at a record high. So people's debt is not as bad as we're hearing, and people's savings is at a record high in this country. And so as a result, even though there are some headwinds from job creation and some of the other economic metrics, we still see inflation-adjusted growth in core retail sales. Uh, they're up 1.6% year over year, and you can see the trend line, uh, you know, it's had its, uh, peaks and valleys, but it's in alignment with its long-term trend and continuing to grow. So the consumer which is the key piece of the US economy, remains sound, surprisingly sound, given some of the headwinds that we're seeing in the media on a day-to-day basis. So then you come to the tariffs, and, you know, when the tariffs were announced last year, a lot of economists, myself included, believed that we were going to see a significant inflation-driven shock. Uh, we were predicting 3.5% to 4% inflation by this point. Uh, and that just hasn't come to pass. When you look at CPI, it's at 2.7%. And there's a whole bunch of different ways to measure inflation. And, but basically they're all in the high 2%. That's higher than the Fed wants, right? They want to have a 2% inflation rate, but the, it's not that surge and it's nowhere near what we saw in 2022 when inflation shot up to 9%. But one of the key things to consider here is, one, a lot of companies have been absorbing the tariffs and that those will at some point be passed on to consumers. So we will see some upward pressure on inflation for consumer goods. We've already seen it for food, and that's going to put upward pressure on inflation. That's part of what's been scaring the Fed. But by the same token, we also know that 44% of the Consumer Price Index, the CPI measurement, is driven by housing. And the cost of houses, the price of houses, is only up like 0.2% in the last year. And rent growth is just somewhere right around 1%. So we— and, and the household inflation metric tends to be backward looking. So we know what the data was in the last year. And so we know that household inflation, housing inflation is going to remain low in the CPI metric. And as a result, it will keep the inflation measurement rangebound right around 3%. So now we shift over and talk about what's going on with the Fed. They've been, you know, cautiously lowering the overnight rate. They kept it stable at the January meeting as expected. Uh, the overnight rate is at 3.5%, and you can see it's breaking away from the 10-year Treasury because there's a lot of other forces influencing the 10-year Treasury. Uh, how much of the Treasuries does the Fed buy? How much do international investors buy? Uh, how does the stock market move and whether or not there's money moving into bonds and, uh, Treasuries or out of bonds and Treasuries? So, uh, that number has been, uh, a little higher. We're at about 4.2%. It was 4.3% last week. Um, and when I talk to investors and I talk to economists, most of them are saying range-bound below 4.5%, above 4.0%, and it will pretty much stay in that range through the course of 2026. But of course, we don't know what's around the next corner. And Chairman Powell's term as the chairman of the Federal Reserve ends on May 15th. Kevin Warsh is the presumptive next chairman. And the question will be, where does he go with this from here? Right now, the FedWatch perception or Wall Street perception is we get 1 or 2 cuts by June and a total of 2 or 3 cuts by the end of the year. So we'll have to see how this plays out. We have to get more information on Warsh and the composition of the Fed governors and the Fed bank chair— bank presidents. And see how this all plays out. But basically, range-bound interest rates is probably a good bet over the course of the year.

All right.

I'm going to talk a little bit about what's going on with commercial real estate, some of the performance trends. We all are pretty much aware, I think, that we had this huge influx of multifamily completions. It peaked in 2024. We had record construction for multifamily, but By the same token, the demand for multifamily outpaced expectations as well. So even though we had this huge wave of completions, we actually filled the vast majority of those apartments and the vacancy rate stayed relatively stable. Now we're predicting that it comes down. The completions come down in 2026 to about 270,000 units. We're predicting a slight uptick in vacancy rates this year, but nothing dramatic or serious. Uh, and when you look across the country, there's a huge range on what, uh, different markets are doing. One key ingredient here is that the housing affordability gap has widened out. Uh, the home payment, the monthly payment on a median-priced home is over $3,000 a month compared to an average rent in the US of $1,800 or $1,850. And that gap in the monthly payments as well as the down payment required for a house is still very significant. And in fact, the percentage of US households that can qualify for a loan under the Freddie Mac standards, the, the debt-to-income ratios, is very low. It's only 29%. Historically, that would be close to 50% of US households could qualify for a loan, and it's very low now. And what that means is, is that the retention of renters is going to remain elevated. We're going to lose less people out of renting and into homeownership than we've seen historically. And that's going to help support, uh, the, uh, the demand for multifamily and keep the vacancies restrained. Uh, the other thing I've been monitoring is the young adults living with family. And we're at a record high level there, uh, that has really pushed up in the last year, uh, similar to what we saw during COVID when a lot of young people were moving in. And I think a big piece of that is it's just hard to find a job as a new entrance, uh, into the workforce. But I point out that historically when it has surged, within the next couple years it usually comes back down again, uh, and that is pent up housing demand that we can expect to unlock as the employment market improves. So we're seeing a real slowdown in the pace of absorption for multifamily right now. In fact, the fourth quarter ran into negative territory on a national basis. I was like negative 45,000 units, uh, in the fourth quarter. Uh, but as these young adults start to find employment and as they move out of their parents' house, we get new household formation and that will support housing demand and, and absorption of apartment units. Uh, so that's a positive out there. When you look at retail, uh, we continue to see very minimal construction and about 75% of that is single tenant. The vacancy rate is around 5%, uh, for all of retail combined, uh, which is still pretty low compared to what we've seen over the last 20 years. And so retail has been outperforming When you look at the, uh, subsegments of retail, you can see that the shopping malls are really the thing pushing it up. Uh, all the rest of the retail sector, the grocery anchor, the lifestyle centers, the unanchored centers, single tenant, it's all clustered right around 4.5, 4.6, 4.7%. And that compression between the different segments suggests that there's very limited space available. Uh, usually if you have a softer market, you're going to see much more spread between those vacancy rates. And we're not seeing that at all. Uh, so we are seeing a little uptick in the vacancy. And I think that's really reflecting the pace of churn of retail tenants, basically with the uncertainty level where it is, a lot of companies are slowing down their pace of moving into new retail space. And so as a result, we're seeing an uptick in vacancy, because space is vacant a little bit longer than we've seen in the past couple years, but it's not a problematic level. Now, when you look at the office market, that got beat up really bad. The pandemic did a number on office. We saw the vacancy rate surge. We saw demand for office space fall like a rock. And, uh, that peaked out in 2024. Q4 at 17.2%. But since then, we have had 7 consecutive quarters of positive absorption. And in 2025, we had about 95 million square feet of space demand, uh, space filled. And that's helping to bring that vacancy rate down. We expect that to continue in 2026. Construction is at a record low for office space, as you would assume. And so there's very little new supply risk. And we see that demand continuing to grow as more and more companies pursue return-to-office efforts. Now, you have to remember, when the unemployment rate was at a record low, 3.5%, companies would try to hire people and they say, well, I want to work from home. And the company's response was, okay, we need to hire people and we really can't take a pass on this. So we're going to have to— bring this person on, they'll work from home, that's fine. We'll deal with it. Now that the unemployment rate is pushed up a little bit, now that the employment market has softened a bit, the companies have a lot more leverage in that conversation. And so when they're hiring somebody and the person says, hey, I want to work from home, the company may often respond, okay, I understand. We're going to move on to the next candidate. We have a big pool of people applying for this job. We're going to find someone who's ready to come back into the office and join us here. So that's going to be a positive, but it's not all office buildings, right? The, if you, I kind of have this broken into two subsegments. I've measured each of these pieces individually, downtown versus suburban, older construction versus new and large versus small. And when you take the best of the best suburban, newer, smaller office buildings and compare it to kind of the worst performing assets, which is Central Business District, 1980s construction office towers, you see a real breakout in the office vacancy levels, 9.1% for the best type of assets and 24% vacancy in some of the struggling urban office towers. So, you know, as investors into office, there is huge opportunity. But you need to know your properties. You need to know how to operate them. And there are some segments that are definitely performing better than others. Industrial had that huge wave of completions. It hit a record low vacancy rate in '21, '22. But since we had all this new additions, it pushed that vacancy rate higher. It's up at 8.4%. But when you dig under the surface again, just like when we did with office and retail, you see that there are specific types of industrial properties that are facing headwinds, uh, that $200,000 to $750,000, uh, uh, industrial space, especially some of the older builds, which has lower clear heights and, uh, space between the pillars. Uh, those are having the most challenges. When you get down into the smaller infill industrial, the vacancy rate is still exceptionally low at 4.2%. Uh, the urban logistics centers and the infill industrial and also industrial properties in smaller tertiary markets continue to outperform. So we see a lot of the capital flowing that direction. And when you look at the rent growth, it's all pretty much across the board, you know, give or take 1% depending on the property type. Now, there's a huge variance. I'll point out that last year in 2025, you know, rent growth in Chicago and Cleveland for multifamily was pushing 7%. And at the same time, you had markets in the Sunbelt where you had all that construction where rent growth was actually running negative. So bear in mind, these are averages from across the country and there is tremendous variance depending on which market you're operating in and the asset type that you're working with in any given market. All right. So I'm going to move into the last section here, which is the sales trends. Activity is growing. We've seen an uptick from the trough in 2023. We're climbing back up and we're almost back to what I call normal, which is the average transaction velocity from 2014 to 2019. We're still well below that peak year of '21 and '22 when all the capital was flowing into commercial real estate. But we're moving really close to a quote unquote, a normal transaction climate. And there are forces that I believe are going to increase that velocity in the coming year. When you look at the cap rates and the ranges, again, different classes of properties, different locations, different markets, different composition. There's tremendous variance in cap rates. So I'm offering up the average, which is in gray, kind of the highest quartile cap rates in orange and the lowest quartile cap rates in blue. So you can see that there's a pretty wide spread. And you look all the way over at hospitality and of course that spread is enormous. You know, there's a big, huge difference from a major flag hotel to an independent hotel or motel that, you know, with a drive-up there and outdoor walkways. So you can see that that spread is pretty wide. Generally speaking, we've seen upward pressure on cap rates over the last 3 years, and that has really reset pricing and it appears to have stabilized within the last year. This is a combined blended average cap rate for all commercial real estate that I used to illustrate this. And that cap rate is at 6.8%. The spread is starting to open up as the cost of capital has been coming down, and that's largely driven by lenders reducing their spreads, but that the cap rates are starting to plateau. Now, I also want to point out that it's very unusual, historically speaking, for cap rates to rise. And it's usually followed by compression. And this is, you know, largely driven by the flow of capital into commercial real estate and how much money is chasing the assets and how much competition there is for assets which will move that cap rate. And over the last couple of years, we had a slowdown in demand for commercial real estate and the cap rates adjusted and recalibrated. They went higher. And I believe that is a unique opportunity for investors. You kind of, you know, it's the, it's the buy low, sell high model is really, you don't see this very often where those cap rates push up. And almost inevitably, historically speaking, they will come down afterwards. Mortgage Bankers Association is saying that lending for commercial real estate will rise by 27% this year. That's a big positive. That includes refinance as well as transaction activity. We're also seeing an influx of capital raised, being raised especially by institutions. Bain Capital is, you know, has been touting their big $5 billion capital raise earlier this month. And we see just a wide range of major institutional investors that are raising more capital. When you look at the right-hand graph here, the fundraising for commercial real estate targeted investments has started to rise. Last year it hit its trough in 2024 and we're starting to see it rise. We look at the undeployed commercial real estate targeted capital. It's still at a very high level, historically speaking. So there's a lot of dry powder and there's more money coming towards real estate now than we've seen over the last few years. So these are all signs that we're going to see more competition for assets. We're going to see more transaction activity. And as I wrap up, just kind of the key points here. Uh, the US economy is still positive. We're still seeing growth. Job creation is stalling. It's slowing way down and consumers are still positioned to sustain spending. If they have the confidence to do that, if they're not worried, then we could still fuel economic growth from that side. Commercial real estate construction has slowed way down. That reduces your supply risk across all property types. Household formation has also slowed, and that is weighing on housing demand, multifamily demand, but it is still positive in most markets. That repricing that I was just talking about, the higher cap rates, the lower prices, is definitely favorable. And the debt financing has been available and accretive. And we've seen the spreads come in. So at this point, we're, we're at a unique opportunity in that we can generate some positive leverage on a lot of these assets where your cap rate, your yield is higher than the cost of your debt capital. And we see more money flowing back into commercial real estate over the course of 2026. So it could be a very dynamic year. For commercial real estate. And I see a lot of opportunity out there. There is some distress that I think we will want to pay attention to, particularly in some of the Gulf states, a little bit in Florida, a little bit in Texas, maybe a little bit in Phoenix as well, and Denver. Places that have been overdeveloped and that have faced some headwinds are the ones that we want to keep our eyes on. Gentlemen, fantastic.

Wow, great information. Um, so pretty, pretty, uh, clear, uh, moderately bullish picture you're, you're painting for the real estate space. Transactions increasing, uh, capital flows increasing, um, you know, cap rates possibly beginning to compress, um, and the absorption is, is continuing. So it sounds like overall a a medium to strong kind of forecast for, for commercial real estate.

All things being the same, right? But there is, there's a lot of uncertainty for a reason. And we don't know what's around the next corner. You know, these black swan events are a risk that we really need to consider. You know, the overall economy is positive, but it is fragile. It's not going to take a lot to knock it off the tracks. And so So if everything continues as it is, if we adapt to the uncertainty and we don't have a huge curveball that impacts the economy as a whole, then we're probably looking at a good outlook. With regard to cap rate compression, you know, I don't know that we'll see a lot of it in 2026. I think the market is still adapting, but I do think that it may be out there in the future, whether that's, you know, sometime in 2016.

Stabilization, it sounds like.

Yeah, absolutely. I, what I'm seeing is that the cap rates have stabilized overall. We are seeing a little compression in some markets, but it's not a broad-based thing yet.

The investors you're talking to, um, you know, we've seen a huge preference for Class A kind of space. Um, and really, you know, a lot of, a lot of, uh, divergent divergence between the, the, the older assets and the newer assets. Are you seeing buy boxes increasing this year and, uh, who you're talking to?

You know, it was interesting. I was just at the National Multifamily Housing Conference, NMHC conference, uh, last week. And I was surprised. A lot of it, most of the investors were shying away from the older multifamily properties, uh, the '70s construction. They're all saying, hey, we want '90s and newer, newer, uh, almost everybody. Um, so I think that there is a lean that direction. By the same token, I was meeting with a major institutional investor in New York. They're raising a ton of capital. They were talking about— they were up over $50 million a month that they were raising and loading up into their fund, and they expected to push over $100 million by summer in that fund. And they're going after just about anything that's out there. Their, their buy box is enormous. Across property types and across markets and asset classes. What they're pursuing is yield. So they're really opening it up.

Yeah, we're seeing a lot of deals coming across our desk that are pretty attractive from a cash flow basis. And we're seeing cash flows that we haven't seen, you know, in years. And, you know, it's hard to turn that down, right? When you can get positive leverage and strong DSCRs and everything else, it's like, you know, you know, maybe, maybe we'll look at the older property. So, you know, I think hopefully we'll start to see some of that. Do you think we've seen the bottom in, in multifamily?

There's a lot of variance by market, right? So you have the Upper Midwest, you have the Northeast, kind of the West Coast, all pretty much plowing along at this point. The yields have improved and the performance has been relatively strong. The Sunbelt continues to face headwinds. And so the key ingredient here is that we built a lot of units in Texas, Florida, Nashville, Charlotte. You know, the list goes on— Phoenix. And a lot of that was built based on kind of two core ideas. One was job creation and in-migration. Now, as we see the job creation slowed down, as we see that net migration as a result of that slowdown, I think the pace at which we fill those units in the Sunbelt is not as good as what we had been forecasting, say, a year ago when we were looking at the previous employment market. And as a result, I think that there's still some, some challenges ahead for a lot of those markets. Investors who were having a hard time, they were on the edge already, maybe getting, you know, they may be getting cleaned out and they may be forced by the bank or their lenders to sell those assets. So I said, I think we see some of that coming, breaking free in 2026. The stronger investors were able to hold on to those assets and continue to drive them forward. It will just take time. And I think that the models and the expectations of The lease-up time on these properties is going to have to be extended in many cases. And so, you know, are we at the bottom? It depends on where you're looking and it depends on the dynamics of that local employment market and the ability to draw people to move there relative to what we've seen in the past. So there's still a little bit of pain in some markets and some property types.

I think we have seen really strong absorption, right? Kind of even, even in the Sunbelt markets. Are you saying you expect that absorption. I mean, I've seen the numbers I've seen is kind of a, you know, the excess inventory really being cleared out and kind of concessions possibly beginning to burn off. Are you seeing that? Are you saying you think there's a bit more pain in these oversupplied markets?

I think there's still some pain. One of the things that actually I think you have Jay Parsons on here and I was reading some of his material and You know, one of these challenges is that as these leases are rolling over, the existing tenant is going on the website of the company that's renting the apartments and saying, hey, wait, you know, you're renting the same unit that I have for whatever, $200 less. I want that lease rate. You know, this note you sent me about my rent going up 3% this year, That doesn't work for me. I want that lower rate. And so now, you know, as the operator, they're facing challenges of, okay, well, do we just lower their rent? We don't want to do that. And then they move out or— and they move into somebody else who's offering a lot of concessions or they, you know, try to work something out along the way. Or I've even heard that some of these tenants move out of their current apartment, move into a new apartment in the same building at the lower rate. So it's just— it's going to be a challenge. I think that the pace of absorption, we've seen it slowing down for the last couple of quarters. It was fantastic in 2024, in the first half of 2025, but it has really slowed down in the second half of 2025. And that's kind of setting my new basis for 2026. I think it's just going to be a little bit tougher than it was last year. Our job creation has really been cut way down, and that's going to be a headwind.

John, as we wrap up, thanks again for being here. I want to ask one question. You know, I know we're capped at time here, but you use the word fragile, and we're speaking— or you're speaking— I know you speak to large institutions and large companies. Today we're talking to the individual investor, and you use the word fragile. And I just want to ask you kind of a final question. If you're an investor, commercial real estate investor, How should the individual commercial real estate investor, if they're going to be making and deploying capital in '26, you know, do that in a position in which we, you know, it could still be a fragile market but still seems like an opportunity to make money in '26. What advice would you give to the individual investor?

See, personally, I think commercial real estate, investing in commercial real estate this year is a fantastic opportunity. And I'm biased. I admit it. Right. I love real estate, but look at the stock market the last, you know, this last week it's been, it's been rough. You look at crypto, it just got the crap beat out of it.

50% from the highs.

Yeah.

50% drawdown from the highs in Bitcoin. Incredible.

When you, when you look at the other options and say, okay, where am I going to be? Okay. My tagline on my videos and everything on LinkedIn is keep your eyes on the horizon, right? Where are we going to be in 5 years? Now, if you look at some of the risk factors out there, the fragile economy that I mentioned, those are, those are risks, but their impact of those risks on commercial real estate is much less dramatic than it is on some of the other investment options. So you have that part of it. The other thing is when you look at the sectors, right, retail, office, industrial, multifamily, you know, different ones are going to perform a little differently. You know, there's opportunistic investments in office right now. Retail is kind of slugging along and doing a good job generating good yields. Multifamily is kind of hit and miss. But the thing is, is you kind of have to look beyond this cycle. You have to look forward 2, 3, 4, 5 years forward. And when you do that and you look at the pace of construction falling like a rock, you know, number of starts is down 72% from its peak. The number of apartments in construction today is down 50, 53% from the peak. So the supply risk for multifamily specifically is falling. And that demand driver, which is probably going to be a little bit lower than people modeled in for 2026, But at some point, it does unlock again that pent-up demand. Those young adults, right?

It's a win.

Come back into the market. They form new households. My daughter finished college. She came home. She's still living with me. She's gotten a new job and she's like, Dad, I'm going to be moving out pretty soon. I'm like, fantastic. I love that. Now, you know, there's a lot of young people like that who've been living with their parents for the last 6 months or whatever, who do plan on creating a new household in moving out into an apartment. So I think that demand is out there. I think it will start to materialize. And when you think about it over the longer term, I think there's a lot of opportunity associated with that.

Yeah. In the short term, no one could predict anything, but it, but the longer term trends are, you really can look out and see where things are going, like demographics and like household formation, these things, clear there's gonna be demand. So that, that is how investors can, can, uh, you know, do well, right? It's, it's looking out a little bit, as you said, keeping their eye on the horizon. Fantastic, guys.

Give some love to John in the chat. Make sure you follow him on LinkedIn. And, uh, you know, there were several folks that they listen to you every Sunday. Looks like you do, uh, you know, on the Best Ever, um, podcast as well. And so, uh, that's another great place to follow your, your insights. John, what a pleasure. Thank you so much for your insights and really, really enjoyed having you today.

Always amazing. I love talking with you guys. Hey, I'll see you at the Best Ever Conference, right, Bob? Yep. Yeah.

Yeah, Bob is speaking. Our whole team will be there. So we look forward to— look forward to interacting.

We'll catch up there.

Okay, John.

Cheers.