Fed Beige Book: CRE Construction Strong While Leasing Activity Improved at Modest Pace

by CoyDavidson on April 19, 2017

Fed Reports Moderate to Modest  Economic Expansion Across Districts

Economic activity increased in each of the twelve Federal Reserve Districts between mid-February and the end of March, with the pace of expansion equally split between modest and moderate. In addition, the pickup was evident to varying degrees across economic sectors. Manufacturing continued to expand at a modest to moderate pace, although growth in freight shipments slowed slightly. Consumer spending varied as reports of stronger light vehicle sales were accompanied by somewhat softer readings in non-auto retail spending. Tourism and travel activity generally picked up. On balance, reports suggested that residential construction growth accelerated somewhat even as growth in home sales slowed, in part due to a lack of inventory. Nonresidential construction remained strong, but became more mixed in some regions; leasing activity generally improved at a more modest pace. More than half of the reports suggested that loan volumes increased, while only one said they were down modestly. Non-financial services generally continued to expand steadily. Energy-related businesses noted improved conditions while agricultural conditions varied.

Federal Reserve Bank of Dallas

Summary of Economic Activity

Economic activity in the Eleventh District expanded moderately over the past six weeks, with a slight acceleration from the prior reporting period. Manufacturing output strengthened further, and activity among nonfinancial services firms increased. Retail sales rose at a somewhat faster clip, including a pickup in auto sales. Home sales rose during the reporting period, although apartment demand slowed slightly. Loan demand strengthened and the energy and agricultural sectors improved. Employment and wages increased moderately, as did prices. Outlooks generally improved, with most contacts expecting 2017 to be stronger than 2016.

Construction and Real Estate

Home sales rose during the reporting period. Contacts noted the spring selling season was generally off to a good start, with year-to-date sales close to plan for several builders. However, buyers were price sensitive, and incentives were being offered in some markets, squeezing builders’ margins. Housing affordability continued to be a concern. Outlooks were positive, and overall sentiment in Houston was better than this time last year.

Apartment leasing activity slowed and occupancy fell in the first quarter. Annual rent growth was solid in Dallas-Fort Worth but moderated in Austin. Rents were flat to down in Houston. Contacts generally expect slower rent growth this year.

Demand for office space was healthy in Dallas-Fort Worth, and office construction continued to be elevated there. In Houston, office demand was mostly weak and office construction tapered.

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