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Beige Book Report April 2018 First District Boston

FederalReserve.gov

Residential Real Estate
Heading into spring, residential real estate results in the First District continued to reflect sellers' markets. Closed sales for single family homes and for condos were up in Maine, Vermont, and Rhode Island, while other areas experienced moderate decreases. (Vermont reported combined results for single family homes and condos. All First District areas but Connecticut reported changes from February 2017 to February 2018; a technical issue caused December 2017 to be the most recent data from Connecticut.)

Because of ongoing inventory shortages, all reporting areas but Vermont reported increases in median sale prices for both single family homes and condos. A contact from Maine pointed out that negotiations over multiple offers may be fueling higher median sale prices: "multiple-offer situations [are] happening on a regular basis, especially on properties at $250,000 or less." Inventory dropped by double-digit percentages year-over-year across all area markets. A contact in Massachusetts noted that "inventory is so low and demand so high that many low- and moderate-income home buyers are being left on the outside looking in."

Notwithstanding the prospect of rising interest rates, contacts cited eager buyer populations and were optimistic about activity levels in coming months.

Commercial Real Estate
Reports from First District commercial real estate contacts were mixed, but positive on balance. Office leasing demand remained strong in Boston, especially in the urban core, leading to further increases in rents. Providence saw stable, healthy office leasing activity and modest upward pressure on rents. Office leasing remained slow in the Portland area and weakened further in Hartford. Industrial and warehouse space enjoyed robust demand in most of the First District, with the exception of Connecticut. A Portland contact reported that industrial rents in that city increased 20 percent from a year ago in response to demand from diverse users including small manufacturers, while a Boston contact said that demand for retail fulfillment centers had driven up industrial rents in the Boston metro area.

Nonetheless, contacts say that both industrial and office construction have been restrained by the fact that building costs remain high relative to rents. Multifamily apartment construction was expected to slow moving forward amid slower or flat rent growth in most areas. By contrast, condominium development activity increased in both Boston and Portland. Investment sales activity was stable at a slow to modest pace depending on location. Two Boston contacts perceived small increases in capitalization rates for office properties that were seen as consistent with increases in interest rates. Commercial real estate contacts were optimistic on balance.

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