Good morning. It's Sunday, Feb. 8, and in this week's edition, we're covering global capital's pivot to Midwest multifamily, rent growth hitting the wall, sticky inflation complicating the rate cut math, and why the office rebound might have a shorter runway than the headlines suggest.
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Global capital is rotating its U.S. real estate playbook. According to Hines' latest outlook, foreign investors are pivoting toward Midwest and coastal multifamily (think Chicago, New York, Boston) as Sun Belt oversupply lingers, while industrial leasing gains steam on muted construction starts. Office interest remains laser-focused on Manhattan, where pricing sits 50 to 70 percent below pre-pandemic levels. For global allocators, the theme is selective conviction over broad bets.
Multifamily rent growth hit a wall in 2025. Yardi Matrix data shows national asking rents ended December at $1,735, with annual growth falling to 0% after four straight months of declines. Q4 marked the weakest quarterly performance since the global financial crisis, while build-to-rent rates posted their steepest annual drop in over a decade. For multifamily investors, the supply hangover is real, but with construction starts plummeting, the setup for a 2027-2028 rebound is taking shape.
Sticky inflation is back on the Fed's radar (and CRE borrowers' nerves). Core PCE hit 3% in December, a full point above target and the fastest pace in two years. Meanwhile, Adobe's Digital Price Index logged its sharpest January jump in 12 years, with UBS flagging tariff passthrough as a possible driver. For CRE investors banking on rate cuts, the math just got harder.
Last week, I walked an office property that was trading at 50% of what the previous owner paid.
I passed on it. Not because I don't believe in office, but because the deal itself had issues that weren't worth the risk.
But standing in that building got me thinking. Office is everywhere in the headlines.
"The rebound is here."
"AI companies are leasing millions of square feet."
“San Francisco alone is projected to absorb 10-16 million square feet by 2030.”
So I went to the office and sat down for an hour with three different LLMs and asked them the same question from different angles:
What's really happening with office demand?
I submitted the same research prompt to each model, then took their outputs and pitted them against each other, showing each one what the others found and pushing them to dig deeper and find better data.
Here's what I found: AI is creating a paradox.
AI companies are fueling the office rebound right now. OpenAI, Anthropic, and Databricks are gobbling up space.
But those same companies are building the technology that will eliminate the need for traditional offices everywhere else.
McKinsey estimates that 30% of work hours will be automated by 2030. The typing, data entry, copying, and transaction processing.
That's office work, and it's disappearing.
Think about any 1990s office movie. Floors of cubicles packed with secretaries and administrative staff typing and retyping information.
They're gone now! Computers and QuickBooks erased them, not overnight, but completely.
It's all happening again.
A survey from Workplace Intel found that 51% of workers believe AI will eventually eliminate the need for traditional offices.
Productivity in AI-exposed industries has nearly quadrupled, and companies are doing more with fewer people.
Here's my timeline based on what I'm seeing:
Short-term (next 2-3 years): Office is bright. Return-to-office mandates are real. AI mania is real. Absorption will be strong, especially in tech hubs.
Medium-term (3-5 years): Inflection point. AI shifts from helping workers to replacing them. The next recession accelerates this, and companies don't backfill positions.
Long-term (5-10 years): Steep decline. Offices become collaboration hubs for occasional meetings, but the cubicles and clerical floors get hollowed out.
Before you say "location, location, location" (that prime downtown real estate will always hold value), remember this:
I have a bank branch in my town on Main and Main, a prime corner, and it's dead.
The same is true for malls. They were on Main and Main in every neighborhood, and most are dead now. The asset class never recovered—unless you massively reposition them, like we did with Piqua Mall and Ontario Mall.
Bank branches, malls, and travel agencies weren't fringe assets. They were blue-chip real estate, and technology made them obsolete.
So here's what my gut and the AI research are telling me: there's probably a 2-3 year window to ride the office rebound and exit before the major decline starts.
I'm looking at office deals right now, but I'm planning my exit strategy before I even close.
That being said, I could be completely wrong about this.
What do you think? Am I missing something here?
Hit reply. I read every email, and I’d love to get your take.
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Until next Sunday.
Be well,
Saul
P.S. Missed my podcast with Michael Rebelo? Here is the full episode.
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Random Saul Fact: Here’s my office setup, and I’m putting the finishing touches on this week’s email.
