Beige Book Shows Flat CRE Activity Amid Uneven Economic Growth

The short take on the Federal Reserve’s Beige Book for September is not much change with only two districts seeing modest growth, and most districts seeing declining manufacturing. Commercial real estate was flat, though a few districts saw data center and infrastructure project activity.

More generally, labor markets saw slight growth. Half the districts saw slight or modest growth while the other half reported little or no change. Inflation, though down near 2%, still meant increased prices. Apartment rents were steady or slightly down while house prices edged up in many areas.

Now for the CRE details.

In the Boston district, CRE activity was flat, though varied depending on the property type. Office leasing didn’t meet seasonal expectations. Legal and financial tenant demand was strong, but it was weak among high tech. Retail was stable and rents had slight increases. Lending was tight, though better for industrial and multifamily.

CRE weakened in the New York district. Offices worsened, though not as quickly as during last year. Industrial vacancy was up sharply and demand fell in Northern New Jersey. Construction activity continued a decline. Underwriting standards tightened for commercial mortgages, among some other types.

Commercial real estate lending held steady in the Philadelphia region. There was a slight decline in CRE construction. Leasing in office was steady. “Multiple contacts noted increased investment interest in office properties, in part due to much lower valuations, but transactions remained sporadic.”

Cleveland saw mostly unchanged activity in commercial construction and real estate activity. Non-residential construction activity was flat. Some builders said many companies were waiting under after the election to start projects. Some commercial agents reported increased demand for office space as employees returned to work and companies renewed leases after previous postponements.

Richmond saw little change in CRE. In office, there was a decrease in Class-A vacancies but continued vacancy growth in lower-end properties. Some companies in North Carolina were delaying big capital expenses until 2025. There was severe destruction of commercial and residential buildings in Western North Carolina and Southern Virginia. CRE refinancing helped create a modest increase in loan demand.

CRE activity continued to slow in Atlanta, but only slightly. There were rising vacancy rates in office, multifamily, and industrial. Delinquencies in office, multifamily, and hotel loans exhibited higher levels of delinquencies for non-bank lenders. Underwriting remains tight.

In Chicago, nonresidential construction was up somewhat. Activity included healthcare, data center, and electric vehicle battery plant projects. Rents decreased a bit. Vacancy rates and the sublease space availability were up.

Commercial real estate was unchanged in St. Louis. Construction activity picked up. There are many multifamily properties under construction and rental unit demand was strong.

Minneapolis commercial real estate was up. Large data center and infrastructure projects have balanced out much slower activity in other CRE segments, specifically multifamily and other commercial projects. A Minnesota construction firm contact saw “increased pressure on margins to secure a smaller number of opportunities.” Office vacancies are high.

Kansas City CRE activity recently picked up. Sales volume is growing moderately and prices are up. Loan demand was also up but borrowers said they had difficulty in getting credit. Insurance and maintenance are up “robustly.”

Dallas saw steady CRE activity. Apartment leasing was steady though concessions are widespread. Office leans, while slow, were improved and concentrated in Class A. Retail and industrial were up with flat rents.

And in San Francisco, CRE activity was largely unchanged. There was solid demand for retail space with landlords filling vacant spaces with higher rents. Industrial space rents were stable. Office vacancies were elevated; high renovation costs kept landlords from lowering rents to attract tenants. Government infrastructure projects helped commercial activity.