The Federal Reserve's latest snapshot of the economy shows a commercial real estate market that is holding together—even as uncertainty tied to global conflict and cautious business sentiment clouds the outlook.
According to the Fed's Beige Book, economic activity increased at a "slight to modest" pace in eight of the 12 districts, while two saw little change and two reported slight to modest declines. Across all regions, however, contacts pointed to the Middle East conflict as a "major source of uncertainty that complicated decision-making around hiring, pricing, and capital investment," with many companies adopting a "wait-and-see posture."
That caution is beginning to show up in consumer behavior. While spending edged up slightly, several districts reported signs of "consumer financial strain" and "increased price sensitivity." Manufacturing activity also posted slight to moderate gains.
Even so, commercial real estate has remained relatively resilient. The Beige Book noted that overall CRE markets "improved, with strength in industrial properties, especially data center projects," alongside solid demand for Class A office space and weaker interest in lower-tier assets.
At the district level, performance varied.
In Boston, commercial real estate leasing and sales were flat on average. Retail fundamentals "remained strong," while industrial leasing was unchanged and office leasing was flat or slightly up, the report from the Fed said. Non-residential construction slowed slightly and was largely limited to data centers and government projects and the outlook turned more pessimistic.
The New York Fed reported continued improvement in CRE markets, with the New York City office sector benefiting from solid demand from finance and private credit firms. Leasing among AI-related firms "surged," though deals tended to be smaller and shorter-term, "reflecting the experimental nature of the companies involved." Sublease space declined, signaling improving fundamentals, while industrial leasing remained strong across New York and New Jersey. Construction activity declined moderately.
Philadelphia saw a slight decrease in CRE activity, with construction dipping modestly and concentrated in data centers and healthcare projects. Renovation work remained active, according to one contact, while another reported rising availability of warehouse space for lease.
In Cleveland, CRE activity increased modestly, with some contacts noting more bidding opportunities and project inquiries. Still, some firms held back on investments as they waited for potential rate cuts later this year.
Richmond reported unchanged CRE activity overall. Class A office space in some metros was "extremely tight," opening the door for newly renovated A- and B+ properties. Retail and industrial segments were steady, while multifamily vacancies rose and prices declined.
Atlanta recorded moderate growth in CRE activity, supported by strong demand that pushed vacancy rates lower. Office demand remained concentrated in Class A space, while multifamily saw declining vacancies and rising rents. Industrial demand held steady and retail vacancies ticked up slightly.
In Chicago, nonresidential construction "edged up," particularly in warehouse and distribution projects and interior buildouts. Project pricing increased slightly, while broader CRE activity was unchanged. Many tenants signing new office leases opted for smaller footprints.
St. Louis reported mixed conditions. While activity continued, some contacts said uncertainty around tariffs had reduced construction planning last year, leading to fewer projects in 2026.
Minneapolis saw nonresidential construction continue to outperform residential, despite ongoing labor challenges. One midsize Minnesota company laid off 20% of its workforce due to immigration enforcement. CRE activity grew slightly and office conditions improved modestly.
Kansas City's CRE sector was "mostly unchanged," with stable financial conditions. Developer access to credit, loan demand and lending standards all remained steady.
Dallas posted gains in CRE activity, with positive apartment absorption driven by widespread rent concessions. Office leasing remained strong for top-tier properties, while industrial demand was supported by growth in manufacturing and third-party logistics. Retail activity was solid but beginning to soften, while data center and industrial construction remained robust.
In San Francisco, commercial real estate was steady overall. Demand for industrial and retail space was solid, with rising rents, whereas office leasing remained stagnant. Industrial construction held steady, particularly in data centers and public infrastructure projects.
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