Federal Reserve: CRE Activity Improves Slightly

Commercial and multifamily real estate activity generally improved since early January, the Federal Reserve reported yesterday in its Beige Book.

Commercial real estate sales picked up on balance though sales varied widely from flat to strong across the 12 Fed districts.

Fed contacts from the New York district reported sluggish single-family construction but “robust” multifamily construction. The Boston, Richmond and San Francisco districts also reported strong multifamily construction growth and the St. Louis district noted seeing more speculative multifamily construction projects.

Commercial occupancy rates rose in the San Francisco district, spurring higher lease rates and additional construction projects, the Fed said. Commercial vacancy rates approached pre-recession lows in Minneapolis despite significant new construction and St. Paul, Minn., saw more commercial net absorption in the last year than in the previous 10 years combined.

Similarly, industrial real estate vacancy rates decreased across the Cleveland, St. Louis and Dallas districts, the Fed reported. “Demand for commercial real estate space grew robustly in Chicago across retail, industrial and office segments, but there was concern that the lack of commercial construction and increased demand would lead to space shortages and price bubbles,” the Beige Book said. “Commercial leasing activity in Boston was steady and fundamentals remained strong. Richmond (Va.) commercial leasing activity increased moderately for the retail market since the previous report, while activity in the office and industrial markets was tepid.”

Commercial rents increased in the Philadelphia district and Atlanta-area Fed contacts noted generally improving rents and increased absorption.

Looking at CRE construction, the Fed’s New York district reported that availability rates and asking rents held steady for office space, but said new office construction weakened. Commercial construction continued to expand at a “robust” pace in the Minneapolis district, but industrial construction slowed in the Chicago district, the Fed said.