WASHINGTON (MNI) – The following is the Beige Book’s summary of
First District economic activity, published Wednesday:
Commercial Real Estate
Reports indicate that New England’s commercial real estate market
improved modestly in recent weeks. Office leasing volume is up in core
Boston business zones, but mostly because of lease renewals as net
absorption remains close to zero. Providence saw slow but positive net
absorption and a pickup in leasing activity in recent weeks. In
Portland, no significant absorption is reported but rents appear to have
leveled off and some significant deals for downtown office space are
under discussion. By exception, market fundamentals are flat in Hartford
as business sentiment remains cautious amid uncertainty.
Around the region, investment sales activity is on the rise across
most sectors, with multifamily still the most in-demand property class
and retail second. Competition for well-leased multi-family properties
in prime locations has intensified: financing terms are increasingly
favorable and capitalization rates have fallen to as low as 5 percent in
some cases. Respondents note a number of modest construction and
development projects around the region, including retail construction
and speculative (residential) land development in Portland, a
significant number of multifamily projects in Boston, and
health-care-related activity in Providence.
Boston contacts are moderately optimistic but do not expect growth
to result in substantial net absorption during the next six to 12
months. Risk of further downward pressure on office rents in Boston’s
financial district continues, reflecting both high vacancy rates and a
downward shift in the cost basis among properties recently sold at
discounts. A Providence contact, while quite optimistic in the near
term, sees some vacancy risks on the horizon in two to three years.
Portland’s outlook is more upbeat than in the last report, based on talk
of growing investor interest and potential leasing demand. The outlook
for Hartford remains uncertain and our contact is not willing to bet on
robust growth in the near future.
Residential Real Estate
Home and condos sales in the First District declined again in
September on a year-over-year basis. Contacts throughout the region
continue to attribute the declines to the expiration of the tax credit,
along with job insecurity and more general economic uncertainty.
Respondents expect year-over-year monthly declines for the rest of the
year and worry that 2010 sales will be lower than 2009. At the same
time, the median price of homes and condos is edging up in most parts of
the region. Some contacts say the rise in the median price is due to
increased activity in higher-end properties, not to a broad increase in
home prices. Inventory continues to climb throughout the region; most
contacts see these increases as a positive development because the
number of properties for sale has been very low. Contacts do not expect
strong activity to return to the region’s housing markets until consumer
confidence improves.
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** Market News International Washington Bureau: 202-371-2121 **
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