BOSTON – The Federal Reserve Bank of Boston says commercial real estate activity in New England remains mostly flat as the office sector continues to struggle with “mostly tepid demand,” but larger banks are starting to resume lending for “select” commercial properties.
That was the assessment in the latest Beige Book – formally known as the “Summary of Commentary on Current Economic Conditions” – published on March 5 by the Federal Reserve Board based on anecdotal information from the Fed’s 12 districts.
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The Boston Fed, which covers all of New England except for Fairfield County, Conn., reported that while office vacancy rates and rents were flat in February, there was a positive sign in Providence, which saw “an uptick in activity.”
That might have been in reference to the news that the state’s largest hospital group, Brown University Health, will move its administrative offices and hundreds of employees into a downtown office building that had been vacated by Hasbro Inc. months earlier.
Contacts in New England also said they expected stronger return-to-office policies to gradually boost office leasing activity in the coming months. And one contact noted that larger banks were starting to resume lending for some commercial properties, which led to small reductions in borrowing rates.
But the optimism in commercial real estate was limited in February.
Proposed federal government cuts to the National Institutes of Health threatened the region’s life sciences sector, the report said. At the same time, the prospect of tariffs introduced considerable uncertainty into construction costs, putting a damper on lending for multifamily developments despite strong demand for such loans. And loan maturations on distressed office properties remained a concern as forced sales became more common in February.
Meanwhile, the residential real estate markets in New England saw home sales increase sharply year over year, with Fed contacts pointing to the end of uncertainty surrounding the presidential election in November as a cause, as well as homebuyers no longer expecting imminent declines in interest rates.
“Economic activity increased slowly, boosted by a surge in home sales,” the Beige Book said in its summary of the Boston Fed district. “Prices increased modestly on average, but contacts perceived that upward pressure on prices could emerge in response to tariffs. Employment declined slightly, and wages increased modestly. Expectations were mostly optimistic but marked by growing uncertainty.”
The Federal Reserve Board’s latest “Summary of Commentary on Current Economic Conditions,” including the full report for the Fed’s Boston-based First District, is available here.
