Rent rates continued to climb in New York as office vacancy rates also ticked up in October in both midtown and downtown Manhattan, the Fed reported. While commercial construction activity has picked up slightly it continues to remain sluggish with credit availability a restraining factor for the market.

New construction in Philadelphia is mostly limited to institutional, life sciences, multifamily and warehousing sectors in select markets, according to the Fed. Contributing to the weak demand for retail space is regulatory red tape for permits and financing barriers. 

Cleveland reported steady or slow improvement in nonresidential construction activity. While the number of inquiries has picked up recently, the biggest challenge facing builders at this time is adding backlog. Incubation period for public infrastructure projects can be as long as five years, the Fed noted. With construction contracts coming mainly in education, manufacturing, energy, and research and development, Cleveland said it is expecting modest CRE growth over the next six months.  

The Richmond district reported a mix of highs and lows in CRE and construction. Smaller projects were being built faster due to abundant labor availability. Contractors reported that refurbishing of commercial properties was up in both Maryland and the Carolinas, but no one was adding new capacity. Commercial and federal work has dried up in most areas of Virginia with Washington capturing much of what little work there is. North Carolina is prepping for several new manufacturing projects.

The majority of the Atlanta district's CRE contacts noted modest improvement in nonresidential construction and leasing activity. Brokers reported that vacancy rates declined and that rents have begun to stabilize across much of the district. Contractors cited a small improvement in construction activity from earlier in the year. Still, most anticipate commercial real estate conditions to remain largely unchanged over the next several quarters.

Chicago reported continued growth in the industrial sector and an uptick in demand for medical and professional office space, while retail construction remained very slow. A slight decline in vacancy rates was also seen throughout the district. 

As the case in other districts, industrial construction in St. Louis has shown some signs of improvement. In other parts of the region, commercial construction ranged from slow in southern Indiana to an increase in power plant projects in other parts of the state and Kentucky. St. Louis also reported continued limited commercial and industrial construction activity and expects mainly build-to-suit projects for the remainder of the year.

While residential real estate markets grew in the Minneapolis district, CRE market revenue and profits have remained flat since at least August. Office space is still very weak as companies continue to shop for the lowest rates. 

In Kansas City, CRE activity edged slightly higher as vacancy rates experienced a small drop. The district reports that rates could rise somewhat over the next few months. A tornado that hit Joplin, Mo., last spring has led to considerable building activity since then, according to the Fed. 

The Dallas district reported more demand for apartment buildings with an increase in sales of the complexes to investors. Industrial, retail and business firms also noted an increase in leasing demand. Still, the uptick has not made a huge enough dent in overall commercial property sales.

Declining vacancy rates were noted for selected geographic areas that are benefiting from growth in the technology sector, primarily the San Francisco Bay area and Seattle, the San Francisco district reported. Elevated vacancy rates and tenants reluctant to commit to long-term leases could continue put a damper on CRE demand.