FED Construction Report for North East

March 2007 Report

New York/ New Jersey Regional Report
Construction and Real EstateNew York City’s office market eased slightly in January, though rents remain markedly above comparable 2006 levels. Midtown Manhattan’s Class A vacancy rate rebounded to 6.0 percent--up from 5.6 percent in December, but still a ½ point lower than a year ago. In contrast, Lower Manhattan’s vacancy rate slipped 0.3 points to 6.8 percent in January and was down dramatically from 12.3 percent a year ago. Throughout Manhattan, asking rents are up by 25 percent or more over the past 12 months.

Housing markets continue to be mixed. New Jersey homebuilders report that the market for new homes, though still soft, appears to have stabilized in early 2007. However, one contact notes that harsh weather in February has made it difficult to assess market conditions. Builders are reported to have scaled back construction plans and have moved inventories by reducing prices and offering concessions. However, in other areas, adjacent to New York City, the market is reported to be fairly resilient.

The market for existing housing has also been mixed, with continued sluggish demand for single-family homes, but persistent strength in demand for multi-family units--particularly in New York City. Buffalo area Realtors report that both sales and prices for single-family homes were running below year-earlier levels in January, though a pickup in sales and a slight rise in prices is noted in the Rochester area. More generally, single-family home prices across the District are reported to be steady to slightly lower than a year ago. In contrast, Manhattan’s co-op and condo market has remained buoyant: thus far in 2007, both prices and the number of transactions are reported to be up from comparable 2006 levels. Manhattan’s apartment rental market has grown increasingly tight; a large real estate firm reports that rents have accelerated in recent months and have eclipsed previous highs set in 1999 and 2000.

Phildelphia Regional Report

Commercial real estate firms reported that vacancy rates in the region’s office markets have declined slightly in the past few months. Rents have risen for newer buildings and tenant concessions have decreased, but effective rents have eased somewhat for older buildings. The amount of leased space has increased in most markets throughout the region. Commercial real estate contacts expect rents to remain on the rise and vacancy rates to continue to decline through the rest of the year. However, they expect office construction activity to moderate after several large buildings currently under construction or renovation are completed. Demand for industrial space remains strong, with rising rents and declining vacancies. Construction and sales of industrial buildings have been brisk, especially for warehouse and distribution facilities along the region’s highways. Competition for prime locations has been pushing up the price of land suitable for industrial uses in many suburban areas.

Residential real estate agents and homebuilders surveyed in February indicated that sales were still declining. Real estate agents noted that the number of existing homes listed for sale has declined, although the average time houses are on the market before being sold has increased. Home builders have scaled back construction activity sharply, although some builders with projects underway intend to complete construction of the houses planned for those projects. Home builders reported a continued high rate of cancellations, and some have made significant price reductions to sell finished houses. Real estate agents indicated that price appreciation for existing homes has come to a virtual standstill. Although both builders and real estate agents said customer traffic has increased recently, they do not expect a clear signal of the trend in sales until they can gauge the strength of the usual spring upturn.

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