Economic growth continued its slow upward trajectory during September in the Federal Reserve’s First District, but hiring remained stagnant and many of the Fed’s contacts expressed concerns that troubles in D.C. could hamper growth and consumer confidence, according to the Fed’s latest Beige Book Report.
Contacts described the commercial real estate markets in the First District, which includes Massachusetts, Connecticut, Maine, New Hampshire, Rhode Island and Vermont, as either stable or strengthening, and residential real estate contacts were similarly optimistic.
A Boston contact cited improvement in leasing fundamentals in recent weeks across diverse sectors, and redevelopment activity picked up in the city’s retail sector. Another Boston contact told the Fed that office leasing activity is roughly unchanged since the last report, with strong demand in the Seaport and Kendall Square areas and comparatively weak demand for locations in the Financial District. Build-to-suit office construction continued in prime neighborhoods but otherwise office construction was described as negligible in metro Boston.
In Hartford, the sale of two large office building in recent months has resulted in a significant decline in the office vacancy rate for class A space, from upwards of 25 percent to roughly 17 percent, a decline that should lead to some firming of rents after a long period of stagnation. Also in Hartford, investor demand for prime office and multifamily properties stayed strong.
Residential real estate contacts throughout the First District were cautiously optimistic, according to the latest Beige Book, but expressed some concern that higher interest rates could slow sales, particularly in states like Maine and Connecticut where current market activity is largely driven by first-time home buyers. In other states, contacts told the Fed, rising interest rates might be temporarily spurring activity as buyers try to lock in lower rates.
With the exception of one state which saw condo prices fall, median prices for single-family homes and condominiums rose in August relative to last year. Inventory trends vary across the states, with Massachusetts seeing inventory for single-family homes and condos low compared with historic norms-making it a sellers’ market-while inventory in Maine increased in August compared with a year ago, and New Hampshire sources indicate there "appears to be more balance between buyers and sellers."
Most retail and manufacturing contacts reported modest increases in revenue, while consulting and advertising firms reported more robust growth. Domestic and international leisure travel and corporate business travel and entertaining were strong, with hotel occupancy rates in Boston and Cambridge reaching a nine-year high in August and average room rates the highest in a decade. Contacts expressed concern to the Fed that if the government shutdown were to last more than 10 days, that could curtail leisure travel, particularly in October, which is the busiest travel month for New England.
