Business conditions in the Boston area are continuing to see demand growth, but many are toning down their outlooks because of uncertainty in the future, according to the Federal Reserve’s newly released Beige Book.
Reports from commercial real estate contacts around the district contain a mix of good news and bad. On the good news side, in both Boston and Providence significant amounts of office space were absorbed in the third quarter as tenants took advantage of attractive rents for prime locations.
"The outlook turned more pessimistic among roughly half of contacts in light of a perceived increase in national and global risks to growth," the report reads.
The report contained other mixed or contradictory signals. While one contact perceives that leasing activity in Downtown Boston has increased in recent weeks, another contact notes that the pace of office absorption year-to-date in Boston, while positive, remains well below what would be expected in a healthy recovery.
Notwithstanding substantial increases in home and condo sales in August compared to a year ago, residential real estate markets in New England remain "weak and sluggish."
The report cited an enormous decline in buyer activity last year following the expiration of the tax credit for the year-over-year increases observed this year. Meanwhile, the median sale prices of homes and condos decreased slightly in August throughout the region, with the exception of the Greater Boston area where prices rose.
In August, inventory levels in Greater Boston reached very low levels. Residential real estate respondents throughout New England describe buyers as "cautious and patient," reflecting fears over job security. Some contacts express concern about the ability of consumers to secure home-purchase financing. At the same time, several contacts note an increase in investors purchasing single-family properties to rent out.
The report presented a bleak forecast for the end of the year and do not expect a significant improvement in the residential real estate market for the next one to two years.
Meanwhile, Boston is experiencing "robust investment demand" for prime office and apartment properties in the commercial sector.
"The lending environment is characterized, on the one hand, by aggressive competition to fund loans on low-risk properties, such as well-leased buildings in prime Boston locations, and, on the other hand, by a decline in credit availability for properties carrying higher risk, such as those experiencing high vacancy rates," according to the report.
Construction activity in Boston continues at a moderate pace in the apartment, education, and health sectors, while office construction activity is described as negligible.
