CRE Sales Up Due to Mixed Signals in Fed Beige Book

The Federal Reserve’s January 2025 Beige Book revealed a mixed economic landscape, with commercial real estate sales seeing slight growth in November and December.

At the same time, high material costs and financing difficulties continue to slow down new developments, with plenty of regional differences, as reported by GlobeSt.

Regional Differences

Economic activity varied across the 12 Federal Reserve districts, with some regions seeing slight improvements while others reported stagnating or falling CRE transactions.

• Boston: CRE activity remained mostly flat as long-term interest rates limited transactions. Office leasing was sluggish, though prime properties were relatively healthy. A new law aimed at boosting multifamily construction seemed to be having some success. But overall, industry contacts were “cautiously optimistic” about the outlook for 1Q25.
• New York: CRE markets showed slight improvement for the first time after a long decline, particularly in NYC’s office market. Demand was strong for class-A office space in prime midtown Manhattan locations, although construction continued to slip, albeit at a slower pace.
• Philadelphia: CRE activity fell slightly, with fewer new projects starting. Most federally funded public infrastructure projects were delayed, but there was a slight increase in CRE lending.
• Cleveland: A modest uptick in nonresidential construction and CRE demand was noted, driven by greater certainty following the election and expectations of interest rate cuts. Contacts in the region anticipated “moderately increased demand” in the near future.
• Richmond: CRE buyers and sellers worked to finalize deals before EOY, leading to a slight uptick in activity. However, the high cost of new construction projects prevented significant new developments. Lending in real estate-secured loans showed modest growth.

Multifamily, Industrial Resilience

Multifamily demand remained strong in many regions, particularly where rental concessions were offered to balance rising vacancy rates. Industrial leasing also showed solid performance, with rents rising moderately, especially in markets with strong demand for warehouse space.

• Atlanta: Conditions were mixed, with multifamily demand up but requiring concessions. Vacancy rates continued to rise, and the return of more banks to the lending arena was offset by higher long-term rates, meaning financing is still challenging.
• Chicago: CRE activity remained unchanged, with stable prices, rents, and vacancy rates. Demand for commercial real estate loans was also steady.
• Minneapolis: Transactions were up slightly, with office demand lower and industrial somewhat softer. Multifamily vacancy rates rose, but there was some optimism for future growth, though it had yet to translate into significant new activity.
• Kansas City: CRE credit conditions improved due to loan modifications. While construction demand was flat, funding sources are shifting, with municipal projects facing tighter budgets.
• Dallas: The DFW region reported stable CRE activity, with apartment leasing and office demand subdued, though industrial leasing remained strong. Industrial rents rose moderately, thanks to continued demand in logistics and distribution centers.

What’s Next

While the Beige Book signals a slight uptick in sales, the overall economic environment remains cautious. High construction costs, elevated financing rates, and regional economic differences are shaping a mixed outlook for the CRE market in 2025. 

Industry players will closely watch how these conditions evolve in the coming months, especially as interest rates are expected to remain high.