Beige Book: CRE Largely Positive

The Federal Reserve reported largely positive feedback on commercial real estate nationwide over the past six weeks.   

“District reports on commercial real estate were positive on balance,” the Fed said. “Commercial leasing activity increased in the Richmond, Atlanta, Chicago, St. Louis, Minneapolis and Kansas City districts. Leasing activity was steady in the Philadelphia district, steady or increasing in the New York district and mixed in the Boston district.”  

The Fed regularly examines economic trends to give policymakers data to decide monetary policy. The central bank publishes its findings in the Summary of Commentary on Current Economic Conditions by Federal Reserve District, commonly known as the Beige Book.  

Boston, New York, Philadelphia, Chicago and Dallas all saw “very strong” leasing demand, while Houston leasing demand fell, the report said.  Downtown Boston and New York City saw significant mid-summer office rent increases while Center City Philadelphia reported slight rent increases, the Fed said. Retail rents and industrial rents increased in portions of the Richmond, Va. district.  

Fed contacts in the Boston and Dallas districts called themselves “optimistic or cautiously optimistic” about commercial leasing activity; contacts in the Kansas City district expect modest leasing demand improvement.  Commercial construction activity increased in the Cleveland, Atlanta, St. Louis and San Francisco districts.

Construction was described as “active” in the Dallas district, strong to robust in the New York and Minneapolis districts and “steady at a solid pace” in the Philadelphia district. In downtown Boston, office construction activity increased from levels seen as below-normal compared to fundamentals while commercial construction activity remained mixed elsewhere in the Boston district.  

Fed contacts expressed a generally positive outlook for commercial construction in the Boston, Cleveland, Atlanta and San Francisco districts, but they cited risks to construction activity include rising labor costs for skilled workers noted by Boston and Cleveland contacts and tighter underwriting standards for construction loans noted by San Francisco contacts. 

“While the Beige Book does not make a stronger case for a September lift-off, it does not rule one out,” said Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C. “Rolling recessions did not prevent the Fed from raising interest rates in the late 1980s, although rate hikes did take a brief hiatus immediately following the 1987 stock market crash. The current environment is also somewhat similar to the late 1990s, another period when the Federal Reserve raised interest rates.”