Commercial real estate activity grew “in most districts”

Economic Pulse
October 16, 2014
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The October Beige Book report, the Federal Reserve's description of current economic conditions in each of its 12 Districts, described "modest to moderate" economic growth at a pace similar to that noted in September's report.

Economic Growth Characterization by District
Economic Growth by District Table

Source: Federal Reserve SpaceBold = change from prior report.

LABOR MARKET CONDITIONS were reflective of a tightening market, despite the fact that the pace of employment growth was about the same as that reported in the prior report. Most Districts reported that some employers had difficulty finding qualified employees for certain positions: machinists in Boston, skilled workers for construction projects in Chicago and heavy construction and engineering workers in Dallas. Contacts in Richmond noted difficulty in filling openings for truck drivers.

WAGE GAINS were characterized as modest, though several Districts reported upward wage pressures for particular industries and occupations, such as skilled labor in construction and manufacturing. Richmond reported upward wage pressures for skilled engineers, managers, information technology professionals and bankers. San Francisco noted that software developers were receiving above-average wage increases. New York reported that workers were more frequently leaving jobs for higher pay, while a contact in the St. Louis District noted increased turnover of skilled employees who were switching to higher-paying jobs.

In COMMERCIAL REAL ESTATE activity grew in most Districts. Richmond, St. Louis, and San Francisco reported increased commercial construction, industrial construction, or both. Commercial contractors in Atlanta saw an increase in construction activity across many property types. Richmond reported that commercial real estate activity improved modestly over the past several weeks. The New York District noted that the New York City office market continued to strengthen. Atlanta and Chicago reported that many commercial brokers saw growth in activity, while Boston highlighted that commercial real estate fundamentals are either holding steady or improving.

CREDIT activity expanded since the previous Beige Book. New York reported increased demand for commercial mortgages. Philadelphia noted increased loan volume for commercial and industrial loans. Atlanta and San Francisco reported increased commercial loan demand, while Chicago saw demand for equipment and commercial real estate financing increase. Financing for mergers and acquisitions as well as for capital expenditures rose in the Dallas District.

Comments on Real Estate by District


"Commercial real estate brokers across the District continued to report improving demand since the previous report, though they cautioned that the rate of improvement varied by metropolitan area, submarket, and property type. Commercial contractors reported that apartment construction remained robust. Contacts also noted that the level of construction activity across other property types continued to increase modestly. The outlook among District commercial real estate contacts remains fairly optimistic."


"Commercial real estate fundamentals are either holding steady or improving across the First District. In Boston, contacts report that rents continue to rise in the popular Fort Point Channel area and have even started to increase in portions of the Financial District after several flat months. Healthy demand for office space and lack of new office construction are seen as the forces behind the latest rent increases in Boston, which are perceived as being in excess of increases in operating costs. Office leasing is also reportedly strong in Boston's inner suburbs, such as Waltham and Burlington. Construction activity in greater Boston is reportedly steady, but at a high level, with an emphasis on mixed use and „adaptive reuse" of existing structures."


"Nonresidential construction increased, driven in large part by demand for industrial and office buildings. Automotive parts manufacturers, in particular, remained a source of demand for industrial buildings. Commercial real estate activity continued to expand, with contacts noting strong demand for medical office buildings. Vacancies ticked down, rents rose, and leasing of industrial buildings, office space, and retail space all increased."


"Office leasing activity increased in Dallas and Austin and held steady at high levels in Houston. Contacts noted moderate growth in rents. Demand for industrial space remained strong and vacancy rates remained tight in most major metro areas. Construction activity stayed elevated, and outlooks were mostly optimistic."

New York

"New York City's office market continued to strengthen in the third quarter: Office availability rates declined moderately in the Midtown and Midtown South markets and fell more noticeably in Lower Manhattan. Asking rents continued to rise and were up 5 percent to 10 percent from a year earlier. There are a number of major commercial developments under construction in Manhattan, and an industry contact in northern New Jersey notes that there has been somewhat of a pickup in commercial construction there, albeit from low levels."


"Overall, nonresidential real estate contacts have reported little change since the previous Beige Book period in the pace of growth of construction and leasing activity, which remains slight. Construction activity continues to be greatest for industrial/warehouse building projects; however, some major office and residential projects have broken ground in Center City Philadelphia, and construction activity will accelerate next spring when the buildings begin to go vertical. An architecture and engineering firm reported that its business continued to exceed its plan, and it will be hiring again. Demand for the firm's services has been especially strong from energy-related sectors. Contacts also reported improved leasing activity in downtown Philadelphia and suburban Philadelphia, especially for Class A office space. Strong demand continued in Center City Philadelphia for office, residential, and retail space. In the suburban Philadelphia market, a developer noted that a "flight to quality" from older properties has driven rents higher for Class A office space and prompted ongoing renovations to upgrade older offices into Class A space."


"Commercial real estate activity improved modestly over the past several weeks. A broker in Charlotte reported a gradual improvement in sales and leasing, with a moderately strong office market and modest activity in industrial and retail real estate. The office market in the Hampton Roads area of Virginia was mixed. A South Carolina source reported robust leasing in both office and retail, with a slower industrial market since the last report. Retail vacancy rates were lower in Baltimore and Virginia Beach, and unchanged in Charlotte and Richmond. Office vacancy rates varied across the District. A Charlotte broker reported increased industrial construction, along with a few speculative office projects. Multiple contacts noted rising commercial sales prices. Rental rates varied across regions and submarkets."

San Francisco

"Overall, multifamily construction and development activity remained strong. Commercial office demand was robust in San Francisco and Silicon Valley, and rents increased compared with the previous reporting period. In Los Angeles, commercial real estate construction picked up."