The April Beige Book from the Federal Reserve says that "economic activity was little changed" of late. Nine districts said things were roughly flat while three saw modest growth. Future growth expectations in most continued as they had been, although a couple saw deterioration.
But on the finance side, and for CRE, things were a bit less than laissez-faire. "Nonresidential construction was little changed while sales and leasing activity was generally flat to down," the report said. "Lending volumes and loan demand generally declined across consumer and business loan types. Several Districts noted that banks tightened lending standards amid increased uncertainty and concerns about liquidity."
Even if there is not an official banking crisis, the recent closings of Silicon Valley Bank and Signature Bank, First Republic Bank's need of a rescue, and the forced takeover of Credit Suisse by UBS clearly have heightened concerns of banks, already nervous about rising interest rates and needs for refinancing coming out of a period of easy money and high leverage.
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The period covered was March, so current conditions may differ, especially if there are any rapid movements in conditions.
More specifically, in Boston, CRE activity was generally unchanged since February, but "credit was expected to tighten moving forward," which would seem likely to have a negative future impact. Industrial leasing was strong relative to supply, but rents continued to level off. Office leasing was flat with a slowing of deal flow. Rents in the sector were stable, but tenants were getting increasingly generous concessions. Retail and office leasing is expected to decline.
In New York, CRE was largely unchanged, although office vacancies edged up around New York City and office rents were flat. In the city, vacancy rates were up, and rents were moving down. Industrial vacancies were low and rents up moderately.
Philadelphia reported steady current construction activity but increased delays and cancelations in the pipeline. Leasing slowed and multifamily rent growth eased; some landlords are now offering incentives.
In the Richmond district, retail, industrial, and flex office space remained strong. Others, particularly regular office, slowed. Rents were moderating and landlords increasing incentives and concessions. Some banks have stopped or slowed lending and some equity lenders left the market. "Many respondents cited a looming issue of certain CMBS loans that are coming due in 2023 being unable to qualify for refinancing."
Atlanta saw mixed conditions in CRE. Industrial was healthy; office, multifamily, and some retail slowed. There were increased concerns about costs rising faster than rent increases. More employers are requiring employees to return to the office, but a lot of sublease space will cause problems. Many in CRE are concerned about the availability of financing.
Demand for large office space is generally low in St. Louis. In some parts there are reports of very high warehouse demand and a vacancy rate of less than 1%. Construction is steady.
Minneapolis reported flat activity. Industrial leasing is strong with vacancy rates down slightly even with new supply. Office saw increased vacancies with no new supply.
CRE lending in Kansas City is "almost completely unavailable." There is weak demand for CRE and commercial and industrial loans. Loan quality is expected to deteriorate over the next six months.
In Dallas, office demand was "lackluster," and the amount of sublease space was a damper on recovery. Industrial activity was strong but vacancies up with new supply coming online. Pricing deals has become trickier with higher financing costs, tighter lending standards, and economic uncertainty. That slowed investment sales activity. "Some contacts voiced concern regarding the renewal of commercial real estate loans, particularly those secured by office properties."
And in San Francisco, the CRE market weakened, with office and medical office demand down. "Office vacancies rose as leases expired and occupants reduced their need for space due to hybrid and remote work arrangements." Warehouse, industrial, and data center demand was strong.
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