Overall National Economy
On balance, reports from Federal Reserve Districts suggested that the economy expanded at a modest pace through the end of August. Although concerns regarding tariffs and trade policy uncertainty continued, the majority of businesses remained optimistic about the near-term outlook. Reports on consumer spending were mixed, although auto sales for most Districts grew at a modest pace. Tourism activity since the previous report remained solid in most reporting Districts. On balance, transportation activity softened, which some reporting Districts attributed to slowing global demand and heightened trade tensions. Home sales remained constrained in the majority of Districts due primarily to low inventory levels, and new home construction activity remained flat. Commercial real estate construction and sales activity were steady, while the pace of leasing increased slightly over the prior period. Overall manufacturing activity was down slightly from the previous report. Among reporting Districts, agricultural conditions remained weak as a result of unfavorable weather conditions, low commodity prices, and trade-related uncertainties. Lending volumes grew modestly across several Districts. Reports on activity in the nonfinancial services sector were positive, with reporting Districts noting similar or improved activity from the last report.
Federal Reserve Of Boston
Commercial real estate activity in the First District strengthened somewhat overall, but differences in performance across geographic submarkets persisted. The Boston area saw robust leasing demand in both the office and industrial sectors. Class A office rents in prime Boston locations increased substantially in the past six months, and the office vacancy rate, at roughly 8 percent, was said by one contact to be at an all-time low. Industrial rents in Boston climbed 6 percent to 10 percent over the year as e-commerce users competed fiercely for scarce warehouse space. Construction activity held steady in the Boston area; in recent months, the share of office construction has risen relative to apartments.
In the Providence area, industrial leasing activity remained robust, exceeding expectations, and two-year rent growth in that market was estimated at 33 percent. Office leasing in Providence softened and office asking rents were stable despite a vacancy uptick; a contact expects effective rents to soften moving forward. In greater Hartford, leasing activity for both office and industrial space was described as very slow but stable.
Investment sales were slow across the District. Contacts expect sales to resume in the fall, with the potential for increased demand following declines in long-term Treasury yields and increasingly favorable borrowing conditions. Concerning the outlook, contacts see no risks of overbuilding or over leverage in commercial property in the District. In Boston, the lack of profitability of high-tech firms occupying large blocks of space was cited as a risk factor. Otherwise, respondents expect stable activity.
Federal Reserve Of New York:
Commercial real estate markets across the District have been steady to softer since the last report. Office rents have been mostly flat, while availability rates have been steady to slightly higher. Industrial markets have been mixed, as rents have continued to rise moderately, while availability rates have edged up further. The market for retail space has been particularly soft, with availability rates climbing to multi-year highs and rents declining modestly.
Federal Reserve of Philadelphia:
On balance, commercial real estate construction and leasing activity continued to pull back from relatively high levels. Contacts noted that fundamentals in larger markets seemed sound. Office and industrial markets were characterized by relatively even to positive net absorption, stable vacancy rates, and incremental rent growth.
Federal Reserve Of Cleveland:
Overall, construction and real estate activity was steady. On the nonresidential side, builders continued to report stable and strong demand. New projects came from multiple sectors. Backlogs remained strong. One nonresidential contractor described current conditions as "smooth sailing." Nonresidential builders were confident that demand would remain stable and strong through 2019 and into 2020.
Federal reserve Of Richmond:
Commercial real estate brokers reported a moderate rise in industrial leasing across the District. Office leasing was mostly unchanged in recent weeks, with the exceptions of Charlotte, NC, and Washington, D.C., which experienced strong activity. Vacancy rates remained low in most markets and rental rates were stable to increasing modestly in all sub-markets.
On the commercial sales side, brokers reported modest increases in prices and sales. Industrial construction increased modestly across the District.
Federal Reserve of Atlanta:
District commercial real estate contacts reported leasing and sales activity remained stable since the previous report. Overall, rents continued to grow and vacancy trended downward at a modest pace. However, some contacts noted slowing rent growth and greater concessions in the multifamily, retail, and office segments. Despite increasing costs, contacts reported strong construction activity.
Industry participants noted continuing strength in the industrial sector. Contacts reported that capital for most projects was readily available via banks and non-bank entities.
Federal Reserve of Chicago:
Commercial real estate activity was unchanged, with steady activity across most sectors. Rents ticked up, while vacancies and the availability of sublease space were flat.
Federal Reserve Of St. Louis:
Commercial real estate activity has improved slightly since our previous report. Survey respondents reported a slight increase in year-over-year demand for office and industrial space and a modest decrease in demand for retail space.
Commercial construction activity improved slightly. Survey respondents reported healthy demand for construction of industrial property types and stated that several projects are lined up for the next few months. However, there are some reports of developers deferring future projects due to recent economic uncertainty. Local contacts continued to report labor shortages.
Federal Reserve Of Minneapolis:
Commercial construction grew strongly since the last report. The value of construction starts across the District saw a healthy rise in July compared with a year earlier, continuing an uptick seen in June. A construction project database indicated that the number of new and active projects in the District through early August was slightly higher than or on par with last year. A contact in northern Wisconsin noted strong activity in the Duluth-Superior region, particularly in healthcare and energy.
Commercial real estate grew modestly. In Minneapolis-St. Paul, industrial property continued to see healthy demand, falling vacancy rates, and strong new development. Office vacancy rates rose overall, but asking rents have risen in some submarkets due to strong demand from the tech sector. Average lease rates and property sales were lower, and new construction hit a multi-year low. In Sioux Falls, S.D., office and retail vacancy rates have risen, while the industrial vacancy rate was stable at very low levels.
Federal Reserve Of Dallas:
Reports on the office market indicated leasing was still most active for new class A space. Industrial demand stayed strong and generally in lockstep with the high volume of deliveries. Industrial construction continued to be elevated.
Federal Reserve Of San Franciso:
Activity in commercial real estate markets expanded moderately. In the Pacific Northwest and the Mountain West, construction activity was strong, vacancy rates were low, and rental rates remained elevated. Commercial permitting in Washington was in line with last year's numbers, and contacts highlighted that there are many projects in the pipeline in Oregon and California.