Without inundating you with too much from the Fed’s Beige Book, let’s focus only on what was said about banks, lending and the general access to credit. Hint: lending standards are mostly tightening further and there is a definite slowdown in the pace of lending. Also, I’ll include some noteworthy commercial real estate comments. Hint: things are mostly slowing.
On CRE and lending to it, this comment from KC stuck out to me, “Following the recent financial market volatility, most contacts noted that lending for commercial real estate development is almost completely unavailable. From the lender side, one contact commented ‘we’d already been focusing only on premium deals, but now we are being even stricter about what ‘premium’ means.’”
Also this from SF stood out, “Lending activity fell significantly in recent weeks amid higher interest rates and elevated uncertainty in the banking sector. Lending standards tightened notably, and several depository institutions opted to reduce loan volumes, especially for new clients, despite reporting ample liquidity. Reports indicated that existing and planned projects across sectors were delayed or cancelled due to higher funding costs, heightened uncertainty, and more limited access to credit. Following recent volatility in deposit levels at regional and community banks, outflows have reportedly stabilized since late March.”
Here are the other notable ones from the individual districts:
Boston:
“In the industrial property market, rents continued to level off even though leasing demand was still deemed strong relative to supply. Office leasing activity was mostly flat, although contacts noted a modest slowing of deal flow in both Boston and Providence. Office asking rents were roughly stable, but one contact noted that tenants demanded (and on balance received) increasingly generous concessions. Conditions in the retail market worsened slightly in response to patches of weakness in consumer spending, and as a result firms became more cautious with capital spending. Concerning the outlook, contacts expected to see slight to moderate further declines in office and retail leasing activity moving forward, and perceived growing constraints on investment activity.”
”In particular, several contacts predicted that lending to the commercial real estate sector would become more conservative in response to heightened concerns about banking risks, and one expressed that the credit contraction could be large enough to spill over to other sectors of the economy.”
“The outlook was mostly positive, but some contacts worried that smaller banks might restrict lending over liquidity concerns, putting a damper on economic activity.”
NY:
“Conditions in the broad finance sector deteriorated sharply, coinciding with recent stress in the banking sector. Regional banks continued to report widespread declines in loan demand, ongoing credit tightening, and modestly rising mortgage delinquency rates. Amid heightened uncertainty, most businesses do not expect economic conditions to improve in the coming months.”
“Commercial real estate markets were little changed in recent weeks. Office vacancy rates edged up slightly in and around New York City and were steady across upstate New York, while office rents were mostly flat across the District. New York City’s retail market weakened somewhat, with vacancy rates up slightly and rents trending down. Vacancy rates remained at low levels in the industrial market and rents trended up modestly.”
Philly:
“Bank lending to businesses declined, as contacts within the banking industry reported a tightening of lending standards.”
“Market participants in commercial real estate continued to report steady current construction activity but noted that more projects in the pipeline have been delayed or canceled. Leasing activity continued to slow modestly. Rent growth in multifamily housing eased slightly, and landlords started to offer leasing incentives in some markets. Demand for life sciences space remained strong, but demand for warehouse space softened.”
Cleveland:
“Concerns about developments in the banking industry reportedly had limited impact on recent business activity, though a small share of contacts reported a modest decrease in credit availability. However, many contacts indicated that these developments had increased uncertainty.”
“Nonresidential construction and real estate contacts indicated that demand had changed little in recent weeks on balance. While a few contacts reported that projects had been put on hold, others indicated they have still been able to secure new projects. One general contractor noted that demand had remained stable, but projects were taking longer to get started because the firm had been spending more time working on budgeting issues in the preconstruction phase. Several contacts anticipated construction and leasing activity to soften further in coming weeks because of rising interest rates and banks’ tightening credit.”
Richmond:
“Financial institutions continued to report modest declines in loan demand. Deposit levels also declined, on balance, despite some institutions reporting an inflow of deposits from new clients.”
“Overall commercial real estate market activity decreased in the last month, particularly in the office sector. Retail and industrial/flex space leasing remained robust this period. The industrial market continued to be strong with higher rental rates and good absorption rates. However, rents were moderating in other commercial real estate sectors and landlords were increasing their incentives and concessions. Rising interest rates slowed sales and commercial real estate capital markets activity was negligeable. Some banks had stopped lending for new commercial construction projects and/or had tightened underwriting standards; many equity lenders also had left the market. Many respondents cited a looming issue of certain CMBS loans that are coming due in 2023 being unable to qualify for refinancing.”
Atlanta:
“Loan growth at banks remained strong despite concerns about liquidity.”
“Commercial real estate (CRE) conditions were mixed. The industrial sector remained healthy, while office, multifamily, and some segments of retail slowed. An increasing number of contacts reported concerns about rising costs outpacing rent increases. More employers requiring staff to return to the office has helped stabilize some segments of the market; however, a significant amount of available sublease space is expected to create headwinds. A rising number of contacts mentioned concerns about the availability of financing as some banks reduced funding commitments amid weaker lending from larger financial and non-bank institutions. Concerns over declining CRE values accelerated.”
Chicago:
“Banking contacts reported some movement in deposits but little change in credit availability following the collapse of Silicon Valley Bank.”
“Nonresidential construction activity was little changed overall, though contacts highlighted renovation of hospitality space as an area of growth. Elevated construction costs continued to hold back new projects. Commercial real estate activity decreased moderately, though some contacts said deal flow was still at a healthy level. Demand for leased multifamily space increased while demand for office space continued to fall. Prices and rents were down slightly. Vacancy rates increased slightly, and the amount of sublease space grew modestly.”
St. Louis:
“The banking sector saw loan growth slow and deposits fall, but expressed confidence in their overall position.”
“Commercial real estate continues to see low demand for large office spaces. In Northwest Arkansas, one contact reported high demand for commercial warehouses, which has resulted in a vacancy rate of less than 1 percent. Construction demand remains steady despite high interest rates.”
Minneapolis:
“A substantial majority of contacts reported no effect on their organization from recent banking turmoil.”
“Commercial real estate was flat since the last report. In the Minneapolis-St. Paul region, leasing activity for industrial property remained strong, and vacancy rates fell slightly in the first quarter, despite a considerable amount of new supply coming online. Office space saw the opposite trend, with vacancies rising despite no new supply.”
KC:
“Deposit outflows at community and regional banking organizations raised funding challenges for many organizations in recent weeks. However, community development financial institutions, which typically serve microbusinesses and low-to-moderate income borrowers, reported stable funding conditions despite recent financial volatility. Agricultural lenders also indicated stable liquidity to support lending over the medium term. Generally, lenders expected somewhat tighter lending standards and stricter pricing related to credit risks in coming months.”
“Vacancy rates at commercial properties increased moderately in recent weeks, most notably at office properties. Yet, contacts indicated use of warehousing and distribution space, which had been the strongest property segment over the last year, declined over the past month. Several contacts noted subleasing prices declined further. Following the recent financial market volatility, most contacts noted that lending for commercial real estate development is almost completely unavailable. From the lender side, one contact commented “we’d already been focusing only on premium deals, but now we are being even stricter about what ‘premium’ means.”
Dallas:
“Loan demand weakened further, loan volumes fell, and credit conditions tightened.”
“Demand for office space was lackluster, and heightened levels of sublease space remained an impediment to market recovery. Activity in the industrial market stayed solid, but vacancy edged up due to the arrival of new properties. The higher cost of capital, tighter lending standards, and financial uncertainty has made it challenging to price deals, diminishing investment sales activity. Some contacts voiced concern regarding the renewal of commercial real estate loans, particularly those secured by office properties.”
SF:
“Lending activity fell significantly in recent weeks amid higher interest rates and elevated uncertainty in the banking sector. Lending standards tightened notably, and several depository institutions opted to reduce loan volumes, especially for new clients, despite reporting ample liquidity. Reports indicated that existing and planned projects across sectors were delayed or cancelled due to higher funding costs, heightened uncertainty, and more limited access to credit. Following recent volatility in deposit levels at regional and community banks, outflows have reportedly stabilized since late March.”
“Activity in the commercial real estate market weakened. Demand for office and health-care space continued to wane. Office vacancies rose as leases expired and occupants reduced their need for space due to hybrid and remote work arrangements. Demand for warehouse and industrial space remained generally strong, as did the demand for new data centers.”
END