Beige Book: CRE activity generally slow to stable.

Author:Murray, Michael
Position:Commercial

Commercial real estate market activity remained slow in the Philadelphia Federal Reserve district and at low levels in the Boston, Atlanta and San Francisco districts, with slight upticks in most of the other districts, according to April's Federal Reserve Beige Book.

Philadelphia district bankers interviewed for the Beige Book said loan volume will expand slowly this year with increased economic activity. One banker in Philadelphia said,"We're making more small-business loans, and commercial real estate lending is picking up except for retail properties."

Contacts anticipate recoveries from six months to two years or more for various segments of nonresidential real estate, as construction activity remains weak with little growth expected through this year. Some building activity could increase for industrial space, however, in the latter half of the year. A contact indicated that the market for industrial space "may see positive net absorption by the end of the year, but three-quarters of positive absorption will be needed to put pressure on rental rates."

Area nonresidential developers, builders and real estate firms in the Philadelphia district said rental concessions were widely reported "even with renewals," but one contact noted that "rents are bottoming out and building values are starting to improve for top-quality buildings." Another contact identified "shadow inventory" persisting in the office market and suggested that "a 7 percent unemployment rate is needed before the office market sees positive net absorption."

Office leasing activity was not sufficient to generate significant positive absorption in the Boston district, and asking rents remained flat or up marginally in greater Boston. However, contacts noted some existing tenants successfully bargained for rent reductions and brought their rents down to current market rates from higher levels agreed upon at the market's peak.

Lenders continue to bid aggressively for apartment projects in greater Boston, as rental rate increases persist. While some Boston contacts worry about potential over building in this sector, at least one contact is confident that a "glut is unlikely" because of permit hurdles and scarcity of vacant land in desirable locations.

The multifamily sector remained strong in southern New England, with new construction in several areas of greater Boston and in the planning stages in two Rhode Island locations. In Rhode Island, political uncertainty from budget...

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