The Federal Reserve released its November 28, 2012 “Beige Book” commentary on current economic conditions. The following highlights are noted, including our observations at Point Bridge { }:
Construction and commercial real estate activity remained stable or improved modestly since the October report. {We would have expected greater activity levels if it were not for the paralysis created by the election season and “fiscal cliff” chaos}.
Some businesses were holding back on expansions due to uncertainty (i.e. uncertain future tax rates, European debt crisis, etc.). {Point Bridge agrees that many businesses are maintaining a cautious posture toward real estate commitments, particularly small and mid-sized companies}.
Opportunities in constructing multifamily and special-needs housing remain strong. Public-sector projects have declined. {Historically, the multi-family / apartment sector has been a solid investment segment in the Pittsburgh region and the current environment is no exception. Vacancy rates are in the low single digits, rents have increased and a number of developers are building new product in the City of Pittsburgh, including the Strip District, South Side and Oakland / Shadyside}.
Obtaining financing remains difficult, particularly for projects that are deemed “speculative” by lenders. Small business owners found that credit is available, but collateral requirements are stringent and personal guarantees are often necessary. Start-up and fledging businesses have found it very difficult to obtain credit. {Large, well-capitalized companies are taking advantage of historically low interest rates, along with their access to funding sources, to fuel expansion. Typically, small to mid-sized business owners and developers who can access bank loans find that the underwriting process is frustrating and lengthy}.
Contractors reported higher prices for construction materials, especially drywall and lumber. {Like steel, copper and petroleum-based raw materials, these commodities fluctuate based on supply and demand variables. Nonetheless, the cost of new construction, and renovations such as tenant fit-outs, remains high (locally and nationally) relative to 2007-2008 price levels}.