Eight times a year, the Federal Reserve Bank publishes the "Beige Book: A Summary of Commentary on Current Economic Conditions by Federal Reserve District."
Drawing on anecdotal information gathered by the directors of the 12 district banks and their branches, the Beige Book provides an interesting snapshot of how economic conditions have changed since the last report.
The most recent Beige Book -- published on Jan. 13 -- finds continued strength in residential and industrial real estate, with persistent weakness in commercial real estate. Retail and office space demand remains stressed in many areas, with subleased space availability on the rise. Tightening lending standards for commercial loans also are being reported.
The coronavirus pandemic underscores all this as a new president takes office. Looking ahead, the report summarizes: "Although the prospect of COVID-19 vaccines has bolstered business optimism for 2021 growth, this has been tempered by concern over the recent virus resurgence and the implications for near-term business conditions."
That uncertainty prompted predictions of a bumpy first half for the year, followed by improvements in the second half of 2021, with decisions delayed when they could be until then.
Here are a few highlights from each of the districts to give you a look at what's going on across the country in different markets.
Federal Reserve Bank of Boston
Industrial, lab, and life science space continue to do well. The report says, "In the industrial leasing sector, demand outpaced supply in some metropolitan markets, with one contact citing a local vacancy rate below 2%." Industrial buildings put up for sale were drawing multiple interested buyers.
In the office market, the report says, lease renewals were "almost the only activity," with tenants willing to pay slightly higher rents in exchange for shorter terms. Retail conversions to industrial also were predicted for the next several years.
Federal Reserve Bank of New York
Housing markets have been mixed, while markets for office and retail space weakened further, the report says. There was some optimism growing about the near-term outlook. The housing rental market, especially in New York City, has helped lead to effective rents in Manhattan and Queens falling by more than 20% from a year earlier, and vacancy rates across the city are reported at multidecade highs, the report says.
Federal Reserve Bank of Philadelphia
Demand for new home construction remained strong, driven both by first-time buyers moving out of apartments and "well-heeled buyers seeking more space or second homes," the report says. Also noted was an increase in appraisal challenges, often resolved through cash purchases.
The district also saw a continued moderate drop in commercial leasing activity. Sublease office space was being dumped into the market, and there are growing retail vacancies.
Federal Reserve Bank of Cleveland
Residential real estate activity had been seeing a rebound from pent-up demand, but that has leveled off, with a seasonal rebound expected in the spring.
Demand for industrial space remains robust, and one general contractor told his district bank contact that his industrial backlogs had doubled during the past two months. But, the report says, "By contrast, demand for retail and office space remained weak as COVID-19 cases continued to rise and corporate uncertainty persisted."
Additionally, the surge in COVID-19 cases continues to dampen consumer demand, adding to stress on retail and hospitality tenants.
Federal Reserve Bank of Richmond, Virginia
Home sales and prices continued at high levels, while office tenants continued to downsize. Commercial real estate was little changed since the last report about six weeks ago, and leasing remains weak and below pre-pandemic levels, while industrial real estate remained strong.
The report says, "Some pop-up retailers developed, buying or leasing property where former retailers had gone out of business."
Restaurants that rely on outdoor seating to survive have seen that business decline because of the weather, and some have closed. A ski resort told the district that bookings were strong and schedules were being adjusted to accommodate demand while maintaining social distancing.
Federal Reserve Bank of Atlanta
Mortgages in forbearance or delinquency remain elevated, the report says, particularly in rural Alabama, Mississippi, and Louisiana, and in urban markets in south and central Florida and north Georgia.
Commercial real estate activity continues to be hurt by the pandemic, with the hospitality sector continuing to see declining occupancies and the retail sector hit by rising e-commerce and oversupply of retail space.
Home sales continued strong throughout the district, driven by low interest rates, and prices were feeling upward pressure as well from low supply.
Federal Reserve Bank of Chicago
There were modest increases seen in construction and real estate activity, and the district said a number of its contacts cited growth in single-family builds. One Des Moines, Iowa, contact said home construction there was at its highest level in more than a decade and that the market for land was "quite competitive."
Home prices and residential rents were up moderately and slightly, respectively. Prices and rents for commercial real estate fell marginally, the report says, while sublease space increased slightly.
Industrial construction remained a bright spot, the district said, with completed projects in Indianapolis breaking the record set in 2019.
Federal Reserve Bank of St. Louis
Residential real estate loan growth was down from the previous report and from a year ago, while commercial real estate loan volume grew slightly. A CRE broker in Arkansas anticipates declining demand for retail and office and strong demand for industrial space.
Construction projects that had been on hold in Memphis were starting back up again, the report says, and "contacts in Arkansas and Louisville expect industrial properties for distribution, warehousing, and manufacturing will continue to be in high demand."
The report says St. Louis bankers are "cautiously optimistic" that the new round of Paycheck Protection Program (PPP) loans will help distressed businesses.
Federal Reserve Bank of Minneapolis
There has been a moderate decline in commercial construction since the last report, and a recent Minnesota survey showed 42% predicting an overall downturn in construction in 2021, with residential construction continuing to outperform the other sectors. November increases in that activity were reported in Minneapolis-St. Paul; Bozeman, Montana; Bismarck, North Dakota; and Sioux Falls, South Dakota
Softness in new commercial construction was helping keep down vacancy rates, and the outlook for 2021 is "subdued, particularly in urban areas."
The report also says that late payments from multifamily tenants continued to edge up, putting a strain on affordable housing properties, but residential real estate remained strong, including in many rural areas, with record-level mortgage activity reported.
Federal Reserve Bank of Kansas City, Missouri
Shrinking inventory and rising prices contributed to a decline in home sales, while conditions in commercial real estate also deteriorated. However, the district's contacts say they expect prices to stabilize and vacancy rates to edge down in coming months.
Commercial real estate was also seeing modest declines in absorption rates, sales, prices, and rents, the report says, and credit has been growing harder to access. That's reflected in a modest decline in commercial and industrial demand.
The energy business has seen a broad increase in active oil and gas rigs, with expectations for future drilling and business activity turned positive for the first time since the pandemic began.
Federal Reserve Bank of Dallas
The housing market remains a bright spot, the district says, with home sales continuing to be robust and apartment demand strengthening. Supply chain issues and a shortage of skilled labor were impacting new home development, but that segment remained vigorous.
The market for office leasing continues to be weak, the report says, and concerns were reported about the growing amount of sublease space on the market. However, "the industrial market continued to perform remarkably well."
And while apartment demand has been exceeding expectations, that demand has lagged completions, putting downward pressure on occupancy rates and rents, the report said.
Federal Reserve Bank of San Francisco
Residential sales continued strong, although a bit slower than from the previous report. Driving demand are low interest rates and the ability for many more people to work from home.
Many homes in the Mountain West are being sold before completion, with labor and supply shortages and the availability of lots with ready access to public utilities providing some constraint.
Interest in residential rentals grew in suburban areas while continuing to fall in urban areas, while continued high uncertainty was cited for weakening demand for new commercial construction. Permits for new industrial and storage facilities continued to show high demand.
The Millionacres bottom line
Each of the 12 Federal Reserve Banks cover a lot of geography and business conditions, but there are still some constant themes: strong housing sales, rough conditions for retail and office space in most areas, and continuing strength in industrial real estate. The Beige Book is always a good place to start when investors want an overview of areas they're considering or where they are right now.