Monday Morning Scoop - CRE Sales Edge Up Amid Mixed Economic Signals in Beige Book

CRE Sales Edge Up Amid Mixed Economic Signals in Beige Book

The Federal Reserve’s January 2025 Beige Book has looked back on late November and December activity and saw economic activity increasing “slightly to moderately” across the central bank’s 12 districts. As part of that, CRE sales “edged up,” although construction activity slowed because materials and financing costs weighed on growth.

While general observations, these didn’t apply evenly everywhere. In Boston, CRE activity was “mostly flat” with long-term interest rates limiting transactions. Some borrowers, hoping for the decline of rates, looked for extensions to maturing loans. Office leasing was slow though prime Boston properties were relatively healthy. A law intended to promote multifamily construction seemed to be working in some parts of the state. About half of people talking to the Fed were “cautiously optimistic” about greater activity in the first quarter; others expected levels to continue or even feel negative effects of higher-for-longer interest rates.

New York saw CRE markets slightly improve for the first time after a long decline. The New York City office market saw increased demand but concentrated in class A buildings in premier parts of midtown Manhattan. Construction declined but at a more modest rate.

The Philadelphia Fed reported a slight decrease in CRE activity. The existing pipeline of projects continues to shrink. Most federally funded public infrastructure projects are waiting to start. There was a slight increase in CRE lending.

Cleveland saw a modest increase in nonresidential construction and CRE demand. The activity was a response to greater certainty after the election and additional interest rate cuts, though such reductions seem unlikely to continue as had been expected. Industry contacts expected “moderately increased demand in the months ahead.”

In the Richmond district, CRE buyers and sellers worked to close out deals before the year’s end, creating a slight uptick. Although existing construction projects were finishing, the few new ones were starting because costs were prohibitive. Previous hurricane activity continued to have impacts on CRE markets. Lending in real estate-secured loans saw modest demand increases.

Atlanta’s CRE conditions continued to be mixed. Multifamily demand increased but required concessions to do so and already elevated vacancy rates continued upward. More banks returned to CRE lending, however, higher longer-term rates and CRE maturities created challenges.

In Chicago, “commercial real estate activity was unchanged, as were prices, rents, and vacancy rates.” Demand was unchanged. The same was largely true for St. Louis, with any slowing seen as normal seasonality. There was an increase in demand for CRE loans.

Minneapolis construction grew “slightly” from the previous month. CRE activity was slightly higher compared to November. There is increased optimism but it has yet to turn into increased activity. Office activity was lower and industrial, somewhat softer. Multifamily vacancy rates were up.

In Kansas City, improvements in CRE credit were owed to loan modifications. Construction demand was largely flat, but its sources changed. Municipal activity had been an important source, but funding for such projects was waning.

The Dallas Fed reported stable CRE activity. Apartment leasing was seasonally and slow, and rents were flat to down. Office leasing demand was subdued, although up in some individual markets. Industrial leasing was “solid,” with rents rising moderately.

By: Erik Sherman
Source: GlobeStreet