Fed Beige Book: Manhattan Apt Sales Remain 'Weak'

A: Well, I'm in no position to argue the almighty fed and their Beige Book observations, but I certainly would not describe the recent pace of sales 'weak' by any means; especially considering the shock this market went through. It is what it is and sales activity has increased significantly during the months of May, June, July & August, while slowing a bit over the past 8 weeks or so. The reason for the rise in activity continued to be lower prices, low lending rates, increased confidence in the asset class, and a delayed seasonality effect as our most active months was pushed back while the adjustment cycle ran its course. Keep in mind the Beige Book offers anecdotal snapshots of economic and financial activity nationwide; not precise figures.

Fed Beige Book Highlights for the 2nd District -- New York:

The Second District's economy has shown scattered signs of a pickup since the last report. The labor market has given mixed signals, with some signs of strengthening in manufacturing, but ongoing weakness in hiring in other sectors. Manufacturing sector contacts report increased activity and remain optimistic about the near-term outlook. Auto dealers indicate that sales declined sharply in September, as expected, reflecting the end of the cash-for-clunkers program, as well as depleted inventories. However, general merchandise retailers report that sales improved in September and were ahead of plan and roughly on par with a year earlier. Consumer confidence, though still low, has moved up moderately since the last report. Tourism activity in New York City has been sluggish but relatively steady, with leisure visitors partly offsetting an ongoing pronounced slump in business travel.

Commercial real estate markets--in both the office and industrial categories--have been steady to moderately weaker since the last report. Residential real estate markets have been mixed since the last report, but generally weaker, especially at the high end of the market. Home sales activity reportedly rebounded a bit from depressed second quarter levels, but prices, as well as rents, have continued to decline. Finally, bankers report rising delinquency rates--particularly on consumer and commercial mortgage loans--along with ongoing tightening in credit standards; loan demand continued to decline, except for residential mortgages, where bankers report some pickup in demand.

Construction and Real Estate

Commercial real estate markets in the District were steady to softer since the last report. Manhattan's office vacancy rate continued to climb in September and for the third quarter overall, while asking rents continued to drop and were again down about 20 percent from a year earlier (not counting increased concessions by landlords). In the rest of the New York City metropolitan region, however, office markets have slackened only marginally. Industrial vacancy rates are up slightly in northern New Jersey, Long Island and Westchester, while asking rents have fallen moderately in all these areas except Westchester, where they have held steady.

Housing markets remain sluggish across the District, though sales activity has picked up in certain areas. A New Jersey contact indicates that resale activity is inching upward, though prices continue to be depressed due to a substantial volume of foreclosures and short sales. New home sales remain flat in northern New Jersey, though the inventory is gradually diminishing, due to a lack of new development. In western New York State, home sales activity reportedly slowed in August and remained relatively sluggish in September, while prices generally remained steady; contacts express concern that the upcoming expiration of the $8,000 tax credit for first-time homebuyers will adversely affect sales and prices. Manhattan's apartment sales market remained weak in the third quarter. Sales activity rebounded moderately from the prior quarter but remained lower than a year earlier; prices continued to decline and were estimated to be down 18 percent from a year earlier on a per-square-foot basis. The inventory of listings declined modestly, but the average number of days on the market continued to climb. Manhattan's rental market slackened further in September, with average asking rents continuing to run about 10 percent below a year earlier; in addition, landlords are reported to be offering increasingly generous concessions--waiving fees and offering one or more months of free rent. Vacancy rates are reported to have edged down seasonally, but this is expected to reverse in the upcoming (typically slower) winter season.

As I discussed with the Q3 report, yes, sales were down from the year ago period but only slightly. I think there is a good chance sales will meet or beat the year ago period for Q4 when its released, and a very good chance we will beat Q1 + Q2 sales activity from 2009 when those reports come out next year! Its easy to beat the reports that ultimately defined the downturn with sales volume plunging!

We still have pipeline action to come through from the surge in action over the past 4-6 months. To me, the market still seems active for this time of year although deals continue to take place at the stronger end of the trading zone reached after the correction played out.