Fed’s Beige Book: Commercial Property Markets A Mixed Bag

federal-reserve-photo-20120606Eight times a year, the Federal Reserve publishes a volume of “anecdotal information on current market conditions” from each of the twelve Federal Reserve System districts across the US.  They call it The Beige Book, which is what passes for a snappy title in governmental economic data publishing.

The latest edition of the Beige Book paints an unclear national picture of the commercial real estate market:

“Though a little weaker than residential real estate, reports on sales and leasing of nonresidential real estate are still mostly positive – described as modest on average. The  Boston District reported a drop in leasing beyond normal seasonal trends; contacts cited  fiscal cliff uncertainty as a factor. Minneapolis and Kansas City reported increased  demand and tightening commercial real estate markets. Philadelphia, St. Louis, and Dallas all reported more modest increases in nonresidential real estate activity. Nonresidential construction is weaker than residential, with only slight to modest growth. The Boston District reported that demand for commercial real estate loans appears to be  softening and that the pipeline for new construction projects has diminished significantly  since the last report. Dallas reported that construction was expected to pick up in the  commercial real estate sector in 2013.”

A quick sampling of the commercial real estate statements and projections:

  • Boston District: Commercial real estate contacts are somewhat downbeat; office leasing is slow and demand for commercial real estate loans and pipelines for commercial construction activity are weaker than in recent reports. Residential real estate markets continue to recover, with both sales and prices in November above  year-earlier levels. In all sectors, most respondents are holding their selling prices level. Contacts say their  hiring depends on demand growth; as a result, most firms are doing little to no hiring, but some firms are  expanding headcounts substantially. Notwithstanding ongoing concerns with uncertainty, contacts  generally expect continued modest growth in 2013.
  • New York District:  Office markets were relatively stable in the final months of 2012. A commercial real estate contact reports that the recovery from Sandy in Lower Manhattan has been slow, as a number of buildings in the flood zone remained out of service at year end. More broadly, leasing and sales activity across Manhattan were sluggish in November but picked up in December. Vacancy rates II-3 have been steady, while asking rents have edged up, led by brisk gains in Midtown South. Strong  demand from the new media and advertising sectors and some pickup from legal services have offset  weak demand from the financial sector. Elsewhere in the region, vacancy rates were little changed in the fourth quarter, though asking rents fell noticeably in northern New Jersey.
  • Philadelphia District:  Demand for business credit was steady or down slightly since our last report. Some contacts cited a rise in the number of applications for commercial real estate loans and refinancings, but on balance, demand was little changed across sectors and product categories.
  • Minneapolis District:  Commercial real estate markets continued to tighten. A major commercial real estate firm forecast that Minneapolis-St. Paul area office vacancy rates will dip to 17.7 percent at the end of 2012 compared with 19.1 percent at the end of 2011. The same firm forecast industrial vacancy rates to drop to 9.9 percent from 11.2 percent. Residential real estate market activity increased. Home sales in November were up 20 percent from the same period a year ago in the Minneapolis-St. Paul area; the inventory of homes for sale was down 29 percent, and median sale prices rose 17 percent. In the Sioux Falls area, November home sales were up 20 percent, inventory was down 14 percent and the median sale price increased 9 percent relative to a year earlier.

To get the full Federal Reserve Beige Book, download the PDF here or view an HTML version here.

(Photo credit: LA Times)