Business activity continued to expand in the First District as spring weather finally began to hit the region, according to the Federal Reserve’s latest Beige Book report, though contacts were not as positive as they were in the previous report.

The First District includes all of New England except for Connecticut’s Fairfield County.

Commercial real estate fundamentals continued to improve in Boston but were roughly flat in the Hartford area. One contact told the Fed that office rates in Greater Boston were up an average of 7.9 percent year-over-year on the strength of high-demand submarkets such as Cambridge and the Seaport District. Strong sales activity for commercial properties in Boston continued to be fuelled by foreign institutional investors, many of which are increasing their allocations to real estate. Office construction increased modestly in the Boston area and includes a small, but increasing, amount of speculative activity.

Multifamily construction is still increasing in metropolitan Boston. However, one contact told the Fed that new completions may peak in 2015; construction in the hospitality and health care sectors is expected to increase in the coming year. Another contact reported that a scarcity of skilled construction workers is a nationwide problem that contributed to an increase in construction wages in excess of 20 percent in Greater Boston since 2010. Hartford saw a weak first quarter that involved negative absorption of class A office space downtown, but one contact said the weakness reflects the harsh winter weather and likely will be reversed soon.

Tight and declining inventory hurt single-family home and condo sales in Massachusetts, contacts told the Fed. Single-family home sales have declined year-over-year in eight of the last 10 months in the Bay State, according to the Fed. Only 3.4 months of supply are available in Massachusetts; supply in the Greater Boston area is at its lowest level in more than a dozen years. Inventory decreased in the other First District states, as well, due to the snowy weather that buried the region. Contacts told that Fed that zoning laws make new construction in Massachusetts difficult and asserted that new listings – not very responsive to date to ongoing price increases – will not meet buyer demand.

Closed sales of single-family homes and condos increased in Connecticut in February, but the Nutmeg State also saw declining prices for both, possibly reflecting distressed homes, which continue to work their way through the judicial system, according to the Fed.

Overall, First District contacts expect the spring market to be strong, but expect it to start later due to the harsh weather. Respondents anticipated that new listings will rise after owners repair winter damage and express hope that low interest rates continue to bring buyers to the market.