Fed Beige Book: Districts Report Slight to Moderate Economic Expansion in June

by CoyDavidson on July 12, 2017

Overall Economic Activity

Economic activity expanded across all twelve Federal Reserve Districts in June, with the pace of growth ranging from slight to moderate. In addition, the majority of Districts expected modest to moderate gains in the months ahead. Consumer spending appears to be rising across a majority of Districts, led by increases in non-auto retail sales and tourism. However, many Districts noted some softening in consumer spending, particularly in auto sales which declined in half of the Districts. Manufacturing and non-financial services activity continued to grow, with most Districts reporting modest to moderate gains since the last report. Loan demand was steady to increasing in most Districts. Residential and nonresidential construction activity was flat to expanding in most Districts. Most Districts cited low home inventory levels in certain market segments which were constraining home sales in many areas. Energy activity generally improved since the last survey, particularly for oil and natural gas.

Commercial Real Estate

And a few excerpts on commercial real estate from across Fed Districts:

  • Boston: Office leasing activity remained very light in Hartford and light-to-moderate elsewhere in the District. In Boston, leasing demand remains uneven across submarkets within the city. Investment sales demand held steady across the District, and Boston’s premier properties remain in favor among foreign investors.
  • New York: Commercial real estate markets have been mixed but slightly softer on balance. The market for office space has been steady to slightly weaker: availability rates edged up, while asking rents slipped in New York City but were little changed elsewhere. However, the industrial market has strengthened further, with availability rates declining and asking rents up roughly 10 percent over the past year. In contrast, the market for retail space has continued to slacken, with vacancy rates rising to multi-year highs and asking rents little changed.
  • Philadelphia:¬†Leasing activity continued to exhibit little change overall. Rents were rising nearly everywhere for industrial/warehouse space; contacts noted plenty of demand and that new buildings continue to lease up before completion.
  • Cleveland: Nonresidential real estate activity remains strong at elevated levels. Nonresidential contractors report strong demand for education and healthcare related buildings and for commercial buildings for e-commerce distribution. In contrast, contacts noted low demand for retail space in both enclosed malls and shopping centers.
  • Richmond: On balance, commercial real estate leasing and construction rose moderately. Industrial leasing transactions and speculative construction picked up, while retail leasing and sales remained strong. Office leasing was still constrained in most locations, with some agents reporting rising demand for Class A space. Rental rates increased modestly in most industrial, retail, and office markets.
  • Atlanta: Many District commercial real estate contacts reported improvements in demand that have resulted in rent growth and increased absorption, but they continued to caution that the rate of improvement varied by metropolitan area, submarket, and property type. The majority of commercial contractors indicated that the pace of nonresidential construction activity had increased from one year ago, with many reporting increasing backlogs.
  • Chicago: The pace of commercial real estate activity remained strong and even picked up a bit, led by gains in the industrial sector. Activity was especially strong in West Michigan, and a contact there reported that activity had increased moderately over the reporting period. Commercial rents edged up, as vacancy rates and the availability of sublease space decreased slightly.
  • St. Louis: Commercial real estate activity has remained flat since the previous report. Demand for industrial properties continued to be robust, and a Louisville contact reported that there is essentially no warehouse space available in the area.
  • Minneapolis: Commercial real estate was mixed since the last report. Retail vacancy rates have continued to rise slowly in Minneapolis-St. Paul, thanks to a significant amount of space vacated by large retailers. However, another source noted that retail space under construction was lower than a year earlier and grocery expansion continued to eat up available space.
  • Kansas City: Commercial real estate activity continued to expand modestly as vacancy rates declined and absorption, completions, construction underway, sales, prices and rents increased. A modest expansion in the commercial real estate sector was anticipated in the coming months.
  • San Francisco: Commercial construction activity was solid. Contacts reported an uptick in commercial investment aimed at remodeling and repurposing large retail spaces for health-care and entertainment services. Financing conditions for commercial projects tightened slightly.

Federal Reserve Bank of Dallas

The Eleventh District economy continued to expand at a moderate pace over the past six weeks. Manufacturing output rose, and activity in non-financial services increased. Growth in retail sales slowed, while auto sales dipped. Housing demand grew, lending activity increased, and the energy sector saw continued improvement. Crop conditions were mostly favorable. Employment and wages rose, as did prices. Outlooks remained positive, although some contacts noted uncertainty regarding changes in trade and healthcare policy as well as tax reform.

Construction and Real Estate

Homes sales continued to trend upward during the reporting period. Contacts in Austin, Dallas-Fort Worth and Houston noted that sales of low- to mid-priced homes mostly remained strong, however, sales at the higher-price points varied by submarket. Home prices were flat to up, and more builders were focusing on bringing moderately-priced products to the market.

Apartment demand improved and occupancy edged higher in the second quarter, following a generally slow first quarter. Leasing activity picked up in Houston where overall market conditions were beginning to stabilize, and landlords were able to reduce rent concessions on select floorplans. Rental rates rose, with Dallas-Fort Worth seeing the fastest growth. Outlooks were positive and contacts expected continued, gradual improvement in Houston’s multifamily market. Transaction volume appeared to have slowed for multifamily properties as there was not much inventory on the market for sale.

Office demand in Dallas-Fort Worth remained solid and rent pressure persisted, although rental rates at the very high end have been relatively flat. One contact expressed some concern about the elevated level of office construction in the metroplex.

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