Commercial Real Estate Outlook Generally Positive: Fed
An increase in industrial building activity and demand for leases has helped to brighten the outlook for commercial real estate, according to the Federal Reserve Board’s latest Beige Book.
A number of Fed districts reported that vacancy rates continued to fall, rents rose, and the outlook for commercial real estate was generally positive.
Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas City, Minneapolis, New York, Philadelphia, Richmond, Va., San Francisco and St. Louis make up the Fed’s 12 districts.
Non-residential construction activity remained modest, but varied by market and district. Growth was strong in the Minneapolis district, but up only slightly in Richmond, Atlanta, and Philadelphia, according to the Beige Book, which was released Oct. 16.
The Cleveland, Chicago and St. Louis districts reported increased activity for industrial building. Cleveland noted strong demand from the healthcare sector, and redevelopment of vacant retail space picked up in Boston.
Leasing activity continued to improve modestly in most districts, but was particularly strong in the Dallas district, according to the Fed.
In other areas, the Fed noted consumer spending continued to increase and activity in the travel and tourism sector expanded in most districts.
Business spending and payrolls grew in many districts. Demand for non-financial services rose, and manufacturing activity also expanded modestly.
While the districts remained “cautiously optimistic” in their outlook for future economic activity, many also noted an increase in uncertainty due largely to the impact of the federal government shutdown and debt ceiling debate.
“The report does nothing but acknowledge what credit unions have known for a while – the pace of economic recovery remains fragile and scattered,” wrote Brian Turner, director and chief strategist for Catalyst Strategic Solutions, a subsidiary of the Plano, Texas-based Catalyst Corporate Federal Credit Union, in his latest economic analysis.
Meanwhile, the sizeable growth in vehicle loans experienced by the credit union industry during the first quarter apparently caused demand during the second and third quarter of 2013 to dry up, Turner said. Consumer spending also has slowed, which caused the accelerated pace of consumer credit growth to slow, he added.
According to the Federal Reserve report, consumer credit has increased at a 4.7% annualized pace with revolving credit declining 4.6% and non-revolving credit increasing 8.5%.
“But for the credit union industry, the Fed report shows consumer credit increased 10% with revolving credit increasing 8.5% and non-revolving credit increasing 10.2%,” Turner said. “The industry’s overall consumer credit market share was unchanged from July to August at 8.6% but it has increased from year-end’s 8.3%.
The latest projection shows economic growth to average between 2.5% and 2.8% in 2014, Turner said.
“This would portend slight improvement in consumer spending (two-thirds of the nation’s GDP), which in turn suggests moderate growth in loan demand next year,” Turned noted.
He added, “For that to happen, growth is going to have to come from consumer loans as it is expected that the pace of mortgage lending will slow next year.”