Browse Tag: Federal Reserve

Fed: Commercial Real Estate, Employment Improved

The Federal Reserve Beige Book, the eight-times-yearly published compendium of anecdotal information about current national economic conditions, has once again arrived.  This time around, the national story on commercial real estate is about modest growth, improvement and expansion. Based on information collected before October 7 of this year, the Fed states:

Home price appreciation continued at a modest pace in general, and commercial real estate activity and construction improved since the last report. Demand for business and consumer loans increased, aside from some seasonal slowing, and credit quality remained strong or improved. Agricultural conditions were mixed, as low commodity prices pressured farm revenues despite generally strong crop yields. There were signs of stabilization in the oil and natural gas sector, while reports of coal production were mixed.

[…]

Commercial real estate leasing activity generally improved, and outlooks were mostly optimistic, although contacts in a few Districts expressed concern about economic uncertainty surrounding the upcoming presidential elections. Commercial rents were flat to up, and vacancy rates were generally low and/or declined in reporting Districts, except in the Houston metro area where office vacancies increased further. Sales of commercial properties were characterized as robust in the Chicago, Minneapolis, and San Francisco Districts but softened in the greater Boston area. Commercial construction increased on net, with contacts in the Cleveland and Atlanta Districts reporting increased or high backlogs. Shortages of skilled labor remained a constraint on construction activity in some Districts, such as Cleveland and San Francisco.

On employment:

Employment expanded at a modest pace over the reporting period. Reports of hiring were strongest in the Richmond, Chicago, St. Louis, and San Francisco Districts. Layoffs in the manufacturing sector were noted in the New York, Philadelphia, Cleveland, and Richmond Districts. The Dallas District reported that energy-sector layoffs had abated, and manufacturing employment was stable following payroll reductions in recent months. Labor market conditions remained tight across most Districts. While reports of labor shortages varied across skill levels and industries, there were multiple mentions of difficulty hiring in manufacturing, hospitality, health care, truck transportation, and sales. The Richmond, Dallas, and San Francisco Districts noted a lack of construction workers with some contacts noting these shortages were constraining construction activity.

While the color beige may be popularly known as the color people use when they don’t want to use color, this report’s findings do point to our industry’s recent health — and to the green of dollars.

Fed: Foreign Lending For Commercial Real Estate Highest since 2010

English: Globe icon.

It’s an old argument, and it goes something like this: the newest federal regulations on commercial real estate lending standards in the wake of the 2008 financial crisis are too onerous for US banks to adapt to. Sarbanes-Oxley and Dodd-Frank regulatory packages taken together, the line of thinking goes, are strangling US banking and threatening efficient capital allocation by introducing piles of red tape. Too many commercial deals slow down and die waiting for capital, and it’s all thanks to these regulations, say many.

An equally old argument is its opposite:  that the culture of banking, from too-big-to-fail banks down to community banks, is terrible at self-regulation. That systemic risk in lending and repackaging is a real thing that came astonishingly close to burning down the world eight years ago. That evidence is plentiful for this side — from Wells Fargo’s recent sham-account fraud and criminality to the total fines levied on big banks breaking the $200B mark.

No matter what side you find yourself on, a fact remains: to get commercial real estate deals financed, an increasing number of players are looking beyond the regulatory footprint of the US. The winners this are foreign lenders, who are enjoying eye-popping growth over the past six years of commercial mortgage lending.

Foreign Lenders Growth in CRE Outstrips CRE Growth Rates US-Chartered Banks 

The Federal Reserve’s Financial Accounts of the United States includes a subsection called “L.220 Commercial Mortgages”.  And on line 13 of the table that illustrates that since 2010, foreign lenders have increased their amount of money lent to commercial mortgages by a little over 80%. Second quarter 2016 has this number at $55.8 billion.

Screenshot of FRB commercial mortgage numbers

Meanwhile, US-chartered institutions increased their business in commercial mortgages by 15% on a portfolio of over $1.4 trillion.  Note the two lines highlighted next to each other in the table above (click to expand).

So while the US banks lead foreign lenders by more than 30-1, the steepest commercial mortgage business growth volume by far is non-US lenders.

The Why And The What

While there’s no Fed data that puts the cause of the sharply increased foreign lending at the feet of recent regulatory attempts, that won’t stop market-ideologues from claiming that regulation is the reason.

But when they do, we have to remember that on a volume basis, under current regulation, the growth increase alone in commercial mortgage lending by US banks absolutely dwarfs the entire total foreign lending commercial mortgage market by almost 4-1.

So recent regulation is by no means fatal to commercial mortgage lending in the US. Even if we assume regulation explains the sharp rise in foreign lending, the period in question has merely eroded the huge lead US lenders have, by moving the ratio of foreign commercial mortgage lending vs US commercial mortgage lending from its 2010 level near 50-1 favoring US lenders vs. a 30-1 ratio today.

When capital markets change, it’s certainly something to keep an eye on. But rushes to judgement about cause and effect just aren’t in the Fed’s own numbers about commercial mortgage lending.

Fed Votes 7-3 For No Interest Rate Change

At its September meeting yesterday, the Federal Reserve Board noted one way and voted another.  The Fed voted 7-3 to leave its Federal Funds interest rate untouched at its low level, suggesting the commercial real estate national markets will not have to worry about escalating cost of capital — at least for now.

In a press release following the vote, the Fed cited a strengthening labor market plus a picking up of economic activity in the second half of the year as a justification for the vote. Inflation fears were addressed by noting the level remains under the Board’s long-run goal of 2%.

The Federal Funds Rate’s target was allowed to stand between 1/4 and 1/2 of 1%, despite the “case for a [rate] increase [strengthening]”:

Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

Prime Rates Primed To Stay Put

The Federal Funds rate is deeply tied to the prime rates each commercial bank offers to its least risky borrowers, prime rates tracking more or less consistently at 3 percentage points above the Federal Funds rate. The next Federal Open Market Committee (FOMC) meeting where the issue of interest rates will be again considered is scheduled for November 2.

 

Fed Beige Book: Commercial RE Expands Further Across US

English: A map of the 12 districts of the Unit...

The Federal Reserve’s Beige Book, the published-six-times-yearly compendium of anecdotes from every corner of the economy, issued its newest edition yesterday.  Within, we learn the commercial real estate market, viewed from a national perspective, is showing good signs – expansion in transactions and construction plus rising rents characterize many of the Fed’s twelve districts.

Commercial real estate activity expanded further in most Districts. Construction and sales rose only slightly in Boston, Kansas City, and St. Louis but grew at a faster clip in Cleveland and Dallas. In the Atlanta District, construction activity expanded moderately, but contractors reported tight supply conditions, with construction backlogs of one to two years. Contacts in Richmond and New York noted strong growth in industrial construction, and vacancy rates for industrial space fell to 10-year lows in the latter District. Commercial leasing activity strengthened in New York, Richmond, and San Francisco, but grew at a softer pace in Philadelphia, where contacts described the market as in a “lull, not a retreat.” Vacancy rates on commercial properties increased along with completions in the Kansas City District. Commercial rents edged up in various Districts, including in Dallas and San Francisco. Contacts in several Districts cited only modest expectations for sales and construction activity moving forward, due in part to economic uncertainty surrounding the November elections.

While not a commentary on the views of Fed officials, the Beige Book nonetheless provides a handy barometer for regional and national economic activity ranging from commercial real estate to finance, consumer spending, tourism and other major areas.

Get a copy of the entire Fed Beige Book for September 7, 2016 at this link.

Fed Rate Raise Put Off In Wake Of Jobs Report?

The cost of money might not be going up after all. Signals from the Federal Reserve over the last quarter had been pointing to a raise in interest rates in September. But a new jobs report from the US Labor Department showed softer gains than were predicted. Now the signals point again to rates being left at their current low levels.

The issue was in the payroll numbers: although nonfarm employment rose for August, wage gains lagged behind projections, triggering a slide in the value of the dollar felt in currency markets around the world.

The present commercial real estate boom is greatly encouraged by heightened employment, and wages speak loudly to drive aggregate demand for multifamily housing, retail products and the industrial backchannels that produce and move those products. The hot national CRE market depends on jobs. But are the Labor Department’s August numbers on payrolls really reliable?

August Payroll Misses

An interesting pattern picked up by Bloomberg’s Lillian Karunungan shows that the Labor Department’s August payroll numbers have fallen short of expectations for five years running. In “Much Anticipated August Payrolls Have A History Of Misses,” she spells out that the DOL has produced a significant gap between predicted payroll levels and reported levels each August since 2011.

Summer doldrums? A glitch in the survey methodology? Hard to tell. But the above, plus other indicators of national slowdown are more than likely to prompt Fed Chairwoman Janet Yellen this month to leave the interest rates where they were all summer.

Fed Survey: Banks Tightened CRE Loan Standards Over Past Twelve Months

If, during the past twelve months, you’ve gone to the capital markets and suspected that banks aren’t playing ball quite as much as before, a key survey of loan officers says you’d be right.

This week, the Federal Reserve Bank released its Senior Loan Officer Opinion Survey. The project looks at changes to the terms of commercial loans, including loans for commercial real estate. 71 domestic banks and 23 branches of foreign banks were heard from in this year’s survey.

CRE loan classes in the survey included construction and land development loans, loans secured by nonfarm nonresidential properties, and loans secured by multifamily residential properties.

The verdict: there’s been a change, and it goes against the CRE borrower. Even though demand for CRE borrowing has strengthened, commercial real estate lending standards are tighter than those reported in the July 2015 survey.  The tightening has been for all of the four quarters that ended in June of this year.

From the report:

Regarding loans to businesses, the July survey results indicated that, on balance, banks tightened their standards on commercial and industrial (C&I) and commercial real estate (CRE) loans over the second quarter of 2016.3  The survey results indicated that demand for C&I loans was little changed, while demand for CRE loans had strengthened during the second quarter on net.

[…]

Responses to a set of special annual questions on the approximate levels of lending standards suggested that banks’ lending standards for all categories of C&I loans are currently easier than the midpoints of the ranges that have prevailed since 2005 (explained more fully below), except for syndicated loans to below-investment-grade firms. However, banks also generally indicated that standards on all types of CRE loans are currently tighter than the midpoints of their respective ranges.  Compared with the July 2015 [survey], fewer banks reported easier levels of standards and more banks reported tighter levels of standards for all business loan types.

Download the entire Federal Reserve survey PDF after the link.

 

$400 billion in CRE refinancing may be coming: can the banks handle it?

Federal Reserve Bank in San Francisco, Califor...

The wave of lending for commercial real estate development that arose after the 2008 financial meltdown is secured by offices, shopping centers, multifamily and industrial properties all over the US. But worries about regulatory pressure intended to tamp down systemic risk  — risk of the same kind that caused 2008 — are sparking concerns that a wave of refinancing made necessary by closer looks at underwriting standards could cause a new crisis in lending.

The Joint Regulatory Statement of December ’15

In December of last year, the Federal Reserve set the stage for placing CRE lending under a microscope. In a press release named “Statement on Risk Management in Commercial Real Estate Lending” (download full PDF here), federal regulators had this to say about CRE lending:

The agencies have observed that many CRE asset and lending markets are experiencing substantial growth, and that increased competitive pressures are contributing significantly to historically low capitalization rates and rising property values. [Footnote 2 – For example, between 2011 and 2015, multi-family loans at insured depository institutions increased 45 percent and comprised 17 percent of all CRE loans held by financial institutions, and prices for multi-family properties rose to record levels while capitalization rates fell to record lows. Sources: Consolidated Reports of Condition and Income, Costar Property Price Index, and CBRE. End of Footnote 2.] At the same time, other indicators of CRE market conditions (such as vacancy and absorption rates) and portfolio asset quality indicators (such as non-performing loan and charge-off rates) do not currently indicate weaknesses in the quality of CRE portfolios. Influenced in part by the continuing strong demand for such credit and the reassuring trends in asset-quality metrics, many institutions’ CRE concentration levels have been rising.

The agencies’ examination and industry outreach activities have revealed an easing of CRE underwriting standards, including less-restrictive loan covenants, extended maturities, longer interest-only payment periods, and limited guarantor requirements. The agencies also have observed certain risk management practices at some institutions that cause concern, including a greater number of underwriting policy exceptions and insufficient monitoring of market conditions to assess the risks associated with these concentrations.

Regulators advise that lenders review their portfolios and “maintain risk management practices and capital levels commensurate with the level and nature of their CRE concentration risk.”

Wave of Refi?

A topic of concern in the wake of regulatory scrutiny is the extra burden placed upon lenders causing a credit crunch as banks struggle to comply with new capital requirements and more stringent underwriting standards.  Some, like Morgan Stanley’s analyst Richard Hill, quoted in Bloomberg, believe that the new standards will affect smaller banks unduly. “”Given [regulators’] increasing concern about banks with high CRE exposures and years of loosening underwriting standards, we see a scenario where the most exposed banks will be unable to satisfy the CRE market’s financing needs.” he said.

Here Hill references the smaller banks — much smaller than Morgan Stanley with its 60,000 employees operating in 42 countries — characterizing them as “stepping into the void” left by a decline in bond issuances, aka commercial mortgage backed securities, which Hill says have declined to levels not seen in a decade.  The small bank’s exposure to CRE, according to Hill, places them on a collision course with imposed federal standards, leaving the smaller banks outgunned in a regulatory fight.

One Writer’s Thought

In my experience, it’s not common to find the voice of a huge bank worrying much about the fate of smaller banks, even in the wake of regulatory adjustments. Such a position suggests that reading between the lines is called for. Is Morgan’s harrumphing here about how heightened lending standards will affect smaller banks really a backdoor sales pitch to hype its own CMBS offerings or its own refi absorption potential? Is it grist for the mill against how heightened standards will burden Wall Street? Or is it what it appears: a reasoned observation of the entire sector’s capital allocation ecosystem?

Time may tell.

Fed Beige Book: General Increase In CRE Activity

Yesterday, the latest edition of the eight-times-annually published Federal Reserve Beige Book arrived (or, as the kids say, dropped). What lies within its muted brown pages and cream-tone cover*?  Good news for the state of the commercial real estate industry.

Construction and Real Estate

Construction and real estate activity generally expanded in late February and March, and contacts across Districts maintained a positive outlook for the rest of the year. Residential real estate activity strengthened, on balance, with robust growth in San Francisco, Cleveland, and Boston, but more mixed reports from Dallas, Kansas City, and Atlanta. Several Districts credited a mild winter for stronger home sales, and the pace of home price increases picked up in a number of Districts. Multi-family construction remained strong in most Districts. Chicago, Cleveland, and St. Louis also noted some improvement in demand for single-family home construction, and a contact in San Francisco reported backlogs of more than six months for new single-family units. Commercial real estate activity generally increased, with leasing activity and rents rising in many Districts: particularly strong leasing was noted in retailing in Chicago and in the industrial sector in Dallas. Vacancy rates either moved lower or were unchanged in most Districts. Most Districts reporting on nonresidential construction said that demand increased. Contacts in Boston said the education, health care, hospitality, retail, and office sectors all contributed to its recent construction boom. Nonresidential contractors in Cleveland cited broad-based demand, with particular strength in education and healthcare projects, where several builders expressed concern about their capacity to take on additional projects. In contrast, Chicago noted continued weak demand for industrial construction, and Philadelphia reported fewer starts of new nonresidential projects.

The Federal Reserve Beige Book gathers anecdotal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources. The Beige Book summarizes this information by District and sector. An overall summary of the twelve district reports is prepared by a designated Federal Reserve Bank on a rotating basis.

Read the entire Beige Book April, 2016 report here.

* The Beige Book is not colored beige, nor is it a book.

Latest Fed Beige Book: A Mixed Bag Nationally For CRE

Last week saw the publication of the latest Beige Book, the six-times-annually published economic activity report from the Federal Reserve Bank that looks at the whole country divided by Federal Reserve Districts.  You can read the entire Fed Beige Book after the link. Below find the key takeaways for commercial real estate nationally:

Real Estate and Construction (Nationwide)

Most reporting Districts characterized nonresidential real estate activity as modest to moderate; Boston and New York indicated little change. Rental rates rose in more than half of the reporting Districts, and vacancy rates were mixed. Most Districts reported modest or moderate growth in commercial construction, and the Dallas District noted high levels of industrial construction in Dallas-Fort Worth. Contacts in the Atlanta District expect construction activity to increase slightly, while contacts in the Philadelphia, St. Louis, Minneapolis, and Richmond Districts expect overall commercial real estate activity to continue to strengthen at least modestly.

[…]

Banking and Finance (Nationwide)

Lending activity appears to have improved on net. Loan demand grew on balance in the Philadelphia, St. Louis, and San Francisco Districts. Cleveland, Richmond, and Kansas City reported stable credit demand, on balance, while Dallas noted some recent softening. Philadelphia reported the strongest loan growth for autos, commercial real estate, and commercial and industrial deals, while residential lending was flat to down.

[…]

Banking and Finance (Chicago District)
Financial conditions tightened slightly on balance over the reporting period. Financial market contacts noted greater illiquidity in the bond market. In addition, a contact in commercial real estate financing reported a decline in interest from institutional investors amid concern that the commercial real estate market was overheated.

[…]

Construction and Real Estate (Minneapolis District)

Commercial real estate activity was moderate to strong since the last report. Retail, office, and industrial vacancies in Minneapolis-St. Paul have been falling and rents have been rising, according to multiple industry reports. In northwestern Montana, commercial vacancies “have mostly disappeared,” with rates stabilizing at about 5 percent, said a local source, while the Rapid City market “has been extremely active these last couple of weeks of the year.” […]

Fed Beige Book: Commercial Construction Up In Most Districts

 

 

 

What’s in the July Beige Book?  The usual compilation of anecdotal economic reportage from the districts of the Federal Reserve system, of course. The specifics this time around include positive news for commercial construction activity across the US, with mixed-positive news on commercial real estate lending and other factors.  Here are commercial real estate-related excerpts from each district:

 

Commercial construction activity strengthened across most Districts. Cleveland and Atlanta reported increased commercial construction activity compared to a year ago, and Philadelphia, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco noted gains since the previous survey period. Boston and Richmond saw mixed commercial construction activity across their Districts since the previous report. Dallas indicated strong overall commercial real estate construction activity, and commercial real estate construction increased in the Minneapolis District compared with the previous report. Boston, New York, Richmond, Chicago, Kansas City, and Dallas reported tight commercial vacancy rates. Industrial real estate construction and leasing activity was strong in the Philadelphia and Chicago Districts.

 

[…]

 

FIRST DISTRICT: BOSTON

 

Reports from commercial real estate contacts across the First District are mixed. Leasing activity is down in Hartford in recent weeks, a fact attributed in part to usual seasonal patterns and in part to weak fundamentals. Office leasing activity is also down in Providence, while at the same time Rhode Island’s industrial leasing market is tightening amid strong demand and limited inventory. According to a Portland contact, the city’s tourism industry is booming, and three recently-opened hotels enjoy high occupancy rates. Also in Portland, strong office leasing is driven by growth of existing firms rather than by new firms, and investment demand is strong across industrial, multifamily, and medical properties. In Boston, office rents continue to display a modest upward trend, thanks to a lack of new inventory coming to market. A limited amount of speculative office construction is underway in Boston’s Seaport District, but contacts foresee constraints on similar construction in the form of high costs and limited financing. A regional lender to commercial real estate saw a surge in loan volume in recent weeks, a fact the contact attributes to changes in business strategy. According to contacts, hiring in both Portland and Hartford–and hence added office demand–is held back by a scarcity of young, educated workers in these cities. Contacts expect that Boston will continue to see at least modest improvement in commercial real estate fundamentals moving forward, while contacts in Providence and Hartford point to uncertainty surrounding the outcomes of upcoming elections in their respective states as a factor that could restrain economic growth in the near-term. A Portland contact’s outlook remains bullish.

 

SECOND DISTRICT: NEW YORK

 

Commercial real estate markets were mixed but, on balance, somewhat stronger in the second quarter. Office availability rates fell to multi-year lows in New York City and Long Island, but rose to multi-year highs in the Rochester and Buffalo areas; rates were little changed at high levels (near 20 percent) in northern New Jersey and Westchester & Fairfield counties. Asking rents for office space were flat across most of the District, except in Manhattan, where they continued to trend up and have risen nearly 10 percent over the past year. Office construction activity has been brisk in Manhattan but remains subdued across most of the District. Industrial availability rates were mostly steady to down slightly, with asking rents on industrial space rising on Long Island but mostly flat across the rest of the District. Finally, retail vacancy rates in Manhattan continued to trend up at mid-year; still asking rents continue to rise and are up roughly 8 percent from comparable 2013 levels.

 

 THIRD DISTRICT: PHILADELPHIA

 

 The market for commercial real estate and home mortgages, especially refinancing, remains much softer than other lines. Most banking contacts continued to report steady improvement in credit quality and loan portfolios. However, heated competition among banks to secure new loans has led to increased warnings of “too-risky” loan terms. Overall, bankers expressed greater optimism for general economic growth–tending to report a growing confidence among businesses and consumers alike. 

 

FOUTH DISTRICT: CLEVELAND

 

Nonresidential builders reported little change in their pipelines during the past six weeks, while most said that activity is above year-ago levels. In general, our contacts are seeing an improvement in the number of inquiries and growing backlogs. Demand was strongest from the energy, housing (public and private), retail, and healthcare markets. Most builders are fairly optimistic in their outlook, but they remain concerned about labor issues and tight margins. One builder mentioned that rising margins contributed to a decline in his contract win rate.

 

FIFTH DISTRICT: RICHMOND

 

Realtors in Richmond, Virginia Beach, Raleigh, Columbia, and Charleston, South Carolina reported an uptick in commercial construction, while contacts in West Virginia and Washington, D.C. saw little change. A broker in Maryland said that medical construction had stopped. Grocery-anchored retail construction remained strong across the District. Commercial retail contacts reported solid leasing in Virginia Beach, Richmond, Columbia, and Charleston, South Carolina. Demand for retail space in Washington D.C. was flat. Industrial leasing demand weakened in West Virginia and Raleigh, but strengthened in Charleston, South Carolina. Office leasing was robust in Charlotte and Charleston, South Carolina. Most Realtors reported no change in vacancy rates, except in the Carolinas, where contacts in Charlotte, Raleigh, and Charleston noted a slight decrease across sub-markets. Reports on rents varied. Contacts said that commercial sales edged up in Raleigh, northern Virginia, Richmond, and Columbia. Commercial sale prices increased in Charleston, South Carolina and Virginia Beach.

 

SIXTH DISTRICT: ATLANTA

 

Demand for commercial real estate continued to improve across most of the region. Absorption rates remained positive. Construction continued to increase at a modest pace from last year and most contractors noted that their current backlog was ahead of year earlier levels. Contacts indicated that apartment construction remained fairly strong and reported that the level of construction activity across other property types remained steady. The outlook among District commercial real estate contacts remained positive with most expecting activity to grow at a steady pace through the summer months.

 

SEVENTH DISTRICT: CHICAGO

 

 Commercial real estate activity continued to expand, as vacancies ticked down and rents rose. Leasing of industrial buildings, office space, and retail space all increased.

 

EIGHTH DISTRICT: ST. LOUIS

 

Commercial and industrial real estate market conditions have improved, on balance, since the previous report. A contact reported weak demand for office space in the Louisville downtown area, but expected an increase in office space leasing activity because of recent employment gains. Contacts in Memphis noted strong retail leasing activity. A contact in Little Rock reported a stable and healthy industrial market. A contact in St. Louis reported tight market conditions in the industrial market and an increasing demand for new warehouse distribution centers with high ceilings and good multi-modal access. Commercial and industrial construction activity improved throughout most of the District. A contact in Memphis reported a commercial expansion in Shelby Farms Park. A contact in Louisville reported a new commercial development project in northern Kentucky. A contact in Little Rock reported a new office building under construction in Pinnacle Hills Promenade in Rogers, Arkansas. A contact in St. Louis reported an increase in commercial construction projects in north St. Louis County.

 

NINTH DISTRICT: MINNEAPOLIS

 

Activity in commercial real estate markets increased since the last report. Several commercial real estate sales and leasing transactions were announced since mid-May. An office building in Minneapolis will be sold for a city record of $365 per square foot. Residential real estate market activity was mixed. In the Sioux Falls area, May home sales were down 7 percent, inventory increased 7 percent and the median sales price increased 4 percent relative to a year earlier. May home sales were down 10 percent from the same period a year ago in Minnesota; the inventory of homes for sale increased 3 percent and the median sales price rose 7 percent. However, in Eau Claire, Wis., May home sales were up 9 percent from the same period a year ago and the median sales price dropped 3 percent. May home sales increased relative to a year ago in the Bismarck area.

 

TENTH DISTRICT: KANSAS CITY

 

Commercial real estate activity strengthened further, with lower vacancy rates and increased sales, construction and absorption. The commercial real estate market was expected to expand moderately over the next few months.

 

ELEVENTH DISTRICT: DALLAS

 

Robust apartment demand pushed up occupancy rates, and increases in rents were strong in several major metros. Construction activity remained brisk, and contacts are optimistic in their outlooks through year-end.  Office leasing activity remained solid and occupancy high during the reporting period. Rents continued to trend upwards, especially for Class A office space, and were above their pre-recession peaks in some markets. Office investment activity picked up in Dallas but slowed in Houston. Demand for industrial space was strong, with vacancy rates in Dallas and Houston near historic lows. Outlooks remained generally positive.

 

TWELFTH DISTRICT: SAN FRANCISCO

 

Vacancy rates for commercial space were mixed. Some contacts reported low vacancy rates overall, while others pointed to high vacancy rates–particularly for retail space–in part due to transitions to online distribution. Private-sector commercial construction activity increased modestly in most areas but more robustly in the San Francisco Bay Area and Southern California. Contacts from Southern California and Hawaii also reported vigorous public-sector construction activity.

 

 

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