The good news for a change in the Federal Reserve’s latest Beige Book is for commercial real estate, where “activity expanded slightly as multifamily propped up the industrial and office sectors” and loan demand was “flat to modestly higher, on net.”
However, the first item in the main report was uncertainty due to international trade policy, which was pervasive across all the Fed’s district banks.
As Oxford Economics wrote, “The latest Federal Reserve Beige Book painted a picture of an economy treading water amid increasing uncertainty around trade policy. The uncertain outlook also made the Fed's business contacts more pessimistic about the outlook for the economy going forward.”
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The Federal Reserve Bank of Boston saw CRE activity pick up slightly, but uncertainty dampened decision-making. Vacancy rates and rents were flat, and office leasing was up slightly. Life sciences saw slowing demand because of expected research funding cuts and private equity pullback. Financing increased for some non-office buildings because of more private debt fund interest. There were industry concerns that tariffs could slow construction activity, raise energy costs, and reduce demand for warehouse space.
For the New York district, rents stabilized upstate and rose in NYC. Office vacancy rates in Manhattan declined; leasing activity strengthened. But asking rents continued to decline. The interest in higher quality properties “shifted the balance of space.” Northern New Jersey’s industrial market slowed, again because of uncertainty around tariffs and consumer demand.
Philadelphia saw steady leasing and transaction volumes in retail, general commercial, and industrial. However, logistics experienced a slight slowdown. There was also a slowing in construction activity. Some “noted projects in early development phases” were paused because of potential tariff-related cost changes.
Cleveland’s CRE activity saw a slight decline in demand for new projects. Once again, some people in the industry said tariff policies and economic uncertainty kept clients from progressing with projects.
In Richmond, there was a slight increase in CRE activity, “despite some uncertainty and hesitation,” and a recognition that more price discovery had to occur. Few new multifamily projects are getting final approval. Retail and restaurant space demand was strong despite some big chains closing locations. There was a slight decrease in office vacancies. Construction continued to slow.
CRE activity in Atlanta weakened. Multifamily is facing challenges. Office activity is split; newer buildings are seeing stronger leasing and sales, while older properties need upgrades. Industrial demand was sluggish.
Chicago non-residential construction was up somewhat, though CRE industry contracts worried that increased materials and components prices due to tariffs would slow activity. Overall CRE demand in the city was unchanged.
CRE improved somewhat for the St. Louis region. Supply chain disruptions have affected materials' lead times, disrupted project timelines, and increased construction costs.
CRE was flat in Minneapolis. Office vacancy was high, but there’s strong demand among smaller tenants. Industrial, retail, and multifamily vacancy rates were stable.
Kansas City experienced “elevated” multifamily unit delivery even as absorption slowed. Rent growth was flat and declined in some parts of the district. Sales and transactions increased earlier in the year, but deals are falling apart, and closing delays are increasing.
Dallas activity was stable, with multifamily unit demand remaining solid even as rent growth was “lackluster.” Office absorption was positive in some major markets. This was the case for industrial, but there is concern about the impact of trade policies on leasing and investment sales.
The San Francisco Fed reported that multifamily rents rose in line with inflation, but conditions weakened somewhat. “Leasing activity for warehousing, retail, and wholesale space fell as tenants paused expansion plans.” Office leasing improved a bit, but there were increased reports of rent payment issues. New construction slowed as material prices spiked, particularly with expectations of tariffs.
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