Commercial Real Estate Beige Book Breakdown: March 6, 2013
The Federal Reserve publication entitled the Beige Book is not, as its title might suggest, a handbook for interior designers with a preference for inoffensive colors. It is an eight-times yearly published report of the Federal Reserve Board also known as Commentary On Current Economic Conditions. The reports gather “anecdotal information on current economic conditions” in each of the eight Federal Reserve Bank Districts.
The Beige Book publication schedule for 2013 is:
- January 16
- March 6
- April 17
- June 5
- July 17
- September 4
- October 16
- December 4
The commercial real estate industry finds good news in the most recent beige book, along with somewhat mixed indicators. March 6, 2013’s Beige Book reports:
Most [Federal Reserve] Districts reported expansion in consumer spending, although retail sales slowed in several Districts. Automobile sales were strong or solid most Districts, and tourism strengthened in a number of Districts. The demand for services was generally positive across Districts, most notably for technology and logistics firms. Transportation services activity was mixed among Districts, although the majority of contacts were optimistic about future activity. Manufacturing modestly improved in most regions, with several Districts reporting strong demand from the auto, food, and residential construction industries. Residential real estate markets strengthened in nearly all Districts and home prices rose amid falling inventories across much of the country. Commercial real estate activity was mixed or improved slightly in most Districts, and financing for commercial development remained widely available. Overall loan demand was stable or slightly higher across nearly all Districts, and several bankers noted stiff competition for qualified borrowers. Agricultural conditions varied across the country, with some areas continuing to suffer from drought while others reported considerable precipitation and improved soil moisture levels. Districts reporting on energy activity indicated modest expansions in crude oil and natural gas exploration, while mining activity slowed.
Overall commercial real estate conditions were mixed or slightly improved in most Districts. Commercial real estate activity grew modestly in the Philadelphia, Richmond, Atlanta, and St. Louis Districts, and activity in the San Francisco District expanded. Boston and New York reported mixed activity, while the Kansas City and Dallas Districts noted few changes. Although some modest growth was reported in the Chicago District, the level of activity remained weak, and commercial contractors in the Cleveland District noted a slowing in activity, particularly for defense-related projects. Office vacancy rates declined across most of the New York District, and industrial vacancy rates in upstate New York posted their lowest levels in three years. Richmond contacts described the supply of Class A office space as tight, which they attributed to the absence of new construction. Commercial development and leasing activity increased in the San Francisco Bay and Seattle markets, fueled by sustained growth in the technology sector. Commercial construction improved by varying degrees in the Atlanta, Chicago, St. Louis, Minneapolis, and Kansas City Districts. Respondents in the Boston District expressed concerns about overbuilding in Boston’s apartment market and office sector, while Philadelphia contacts noted an increase in energy-related projects and repair work resulting from Hurricane Sandy. Cleveland, Atlanta, and Chicago reported high demand for manufacturing space, with some Chicago manufacturers leasing temporary space to accommodate increased demand. Credit for commercial development and transactions was widely available, although Boston noted a large decline in loan demand and contacts in the Cleveland District said financing difficulties continued.
Loan demand was steady or increased across all the Districts that reported. Residential real estate loan demand was strong in the Philadelphia, Cleveland, Richmond, Atlanta and Chicago Districts, mainly driven by refinances due to continued low interest rates. Demand for commercial real estate loans was also strong in the Cleveland, Richmond, and Kansas City Districts. Auto lending increased in the Cleveland and Atlanta Districts, and Philadelphia and Dallas cited growth in energy-related loan demand. San Francisco continued to report a slowdown in venture capital and private equity activity, but contacts noted an increase in the number of private technology companies moving toward an IPO.
Asset quality improved at banks in the Philadelphia, Kansas City and San Francisco Districts. Philadelphia, Richmond, Atlanta and San Francisco lenders reported high competition for qualified borrowers. Borrowing standards were reported to have been loosened in some Districts. Atlanta contacts noted additional loan capacity, but continued to be cautious with loan activity. Cleveland bankers considered cost cutting measures, including layoffs, due to shrinking net interest margins. New York contacts indicated a decrease in loan spreads for all loan categories, particularly residential mortgages, and bankers in the Chicago District said that very few mortgage originations were being kept on their balance sheets and that interest rate swaps were being utilized to hedge against a potential rise in interest rates. Bankers were generally optimistic about future activity in the Philadelphia and Dallas Districts for the near term, but Atlanta bankers expected activity to ease toward the middle of the year.
Find the entire Beige Book for March 06 2013 after the jump.