GlobeSt.com: We just survived what was clearly an oddball recession. What do you feel are the oddest things about it?

Linneman: There are two things. First is that people are convinced that it was a terrible downturn.

GlobeSt.com: Why?

Linneman: Because it was happening to them. The last time we had a recession, those same people were entry-level or mid-level workers. It makes a huge difference when bad news is happening to you. So to me, the oddest dimension is that the perception of how bad it was is so different from the reality. The other thing that strikes me is that the recession showed how amazingly resilient our economy is. It's odd to think that we came out of an amazing stock market bubble, an overheated economic bubble, a national terrorist attack of enormous proportions and two wars, and that's the worst it was.

GlobeSt.com: I always think it's amazing--to use your word--how short-term our memory is.

Linneman: We lack imagination and memory. We have terrible memories as to what the economy was really like, how good or bad things really were, how bad the snow was when we were little kids. But even more frightening is that we have terrible imaginations. We have a horrible time envisioning our future. Someone asked me recently if I was worried about the call-center jobs we might lose. My answer was that 10 years ago we didn't even know what a call center job was. Here's a whole sector that 15 years ago didn't exist--and we lacked the imagination to see that it could exist. Now we lack the imagination to think they'll be something better beyond it. Three years ago people were saying that the economy would never burp. One year later they were saying woe is me. Both were untrue.

GlobeSt.com: One of the things that strikes me about the current recession is the duplicity of opinion about where we are headed and how long a complete recovery will take.

Linneman: We're at a point of inflection when two things happen. It's a great time for the strong guys to get stronger. They've weathered the downturn well and are better prepared to recover. These include existing opportunity funds and both public and private companies. And it includes the next entrepreneur--the next Barry Sternlicht, someone we don't even know yet who is out there quietly doing small stuff. Points of inflection are where the guys with foresight tend to do the best. It's the old theory that what didn't kill you made you stronger. It also gets rid of some of the competition. Over the next three years you're going to see those who are stronger taking better advantage of market conditions by increasing market share and through buyouts and consolidations.

GlobeSt.com: It sounds like we're entering a very fragmented recovery.

Linneman: Because a lot of guys were under stress and were living solely off of very low priced debt. They looked smart simply because Libor was at 1%. When Libor is no longer at 1% we'll find out that these guys were not as smart as they thought. And yet the opportunities will be there. There are still going to be difficult times ahead. Even though the property sector gets better, the capital markets are going to move against us a bit and there will be an opportunity for certain players--the best opportunity funds and public companies--to raise a lot more capital than others. There'll be more consolidations along the way as well. The next three years will be a fairly dynamic period in that regard.

GlobeSt.com: You've said that all recoveries start out jobless. But some people in the industry have said you can't have a jobless recovery. What do you think?

Linneman: They're wrong. You have a hard time getting office space absorbed without jobs, but that's different than saying the economy can't move forward. For instance, you may not have any more office jobs, but you have a lot more warehouse space being used because people are buying more.

GlobeSt.com: Will office lag the entire industry--and if so, for how long?

Linneman: Office space expansion is a direct profit decision. The question decision-makers ask is are profits sufficient to justify increasing space or a move to a new building. And my experience is that no company will say yes to that unless they have had two years of profit growth--even if they're huddled together like rabbits in a warren. What happens in the next 12 months is that we're going to add 1.4 million to 1.6 million jobs, and that will fill empty desks. And the next 2.2 million jobs will come in 2005, and that's when you'll finally see real absorption taking place.

Instant Insights /

Peter Linneman Of Linneman Associates

Related Stories

Recommended For You