The Federal Reserve’s February Beige Book, a commentary on current economic conditions, said that overall activity in the category rose slightly between mid-January and mid-February. Six of the 12 districts saw no change, four reported modest growth, and two had slight contractions.
In the overall summary of economic activity, the only mention of commercial real estate is a modest decline in construction activity. But some other trends could have indirect implications for the entire industry. Consumer spending, which is the largest driver of GDP, was “lower on balance.” There’s increased price sensitivity for discretionary items. Manufacturing saw slight to modest increases.
As for reported CRE activity in the districts, Boston was flat, though some saw upside potential for both residential and commercial volume. There was continued solid leasing in multifamily and rents increased modestly. Industrial rents were stable at high levels. The office sector continued to struggle. The Trump administration’s proposed cuts to NIH funding threatened the life sciences sector. Larger banks started lending on select commercial properties, creating small reductions in borrowing rates. On balance, the outlook was slightly pessimistic.
CRE markets in New York and around neighboring areas were mixed. New York City’s office markets saw a modest uptick in new leases. Vacancy rates fell. The industrial market in Northern New Jersey weakened slightly. Retail markets in NYC declined slightly, as did construction activity.
Philadelphia saw a slight decrease in construction and 2024 had been a third consecutive year of reduced hours. Contacts in the field there said federal spending cuts could limit projects. Some in banking said rollover risks in CRE lending existed as maturities came due.
Residential construction and real estate demand were down modestly in Cleveland. Construction was flat in recent weeks. Some were optimistic about demand; others put planned investments on hold until interest rate directions and tariff policies were clearer.
In Richmond, CRE activity “took a slight pause” as companies wanted a clearer view of policy changes. Uncertainty is bad for business, but Virginia experienced some of an office uptick with employees going back for in-person work.
Atlanta had mixed conditions for commercial real estate, although there was some sense of improvement since the January report. Office in the city still saw problems and multifamily experienced increased vacancies because of higher supply.
In Chicago, CRE activity was up with selling prices down a bit, with both rents and vacancy rates up slightly.
CRE saw improvements in the St. Louis district. Multifamily demand was solid, but investors paused because of cold weather and uncertain national directions. Retail kept steady demand. Construction is lower than expected because of building, lending, and insurance costs.
Minneapolis saw largely flat CRE activity with construction down modestly. Bid invites were down and retail vacancies were tight in the city.
In Kansas City, CRE construction was up “modestly” outside of office. Retail completions and hotel modifications sped up recently. The number of contractor bids for projects increased and subcontractors and workers were more available. Lenders were more aware of risks from potential material cost increases during underwriting.
Dallas CRE activity was up “slightly.” Apartment demand was stable and rents were flat to down. The construction pipeline is expected to wane this year. Office absorption was up in some markets though vacancy rates were elevated. Industrial demand was down from recent highs.
Finally, in San Francisco, commercial real estate was roughly flat. Office demand increased a bit but remained subdued. Retail space rents rose with inflation. Commercial projects continued to be delayed, although infrastructure and public work continued.