“Our market is a diversified one. We're not prone to the ups and downs of other commercial real estate markets. Our swings aren't as wild.”

Was the source of that quote from Chicago, Atlanta, Detroit, St. Louis or New York? Well, leasing and investment sales brokers in each of those markets have expressed similar comments to me in recent months. The more the economy slips, the more brokers try to convince me that their particular market bucks the national trend. But when the market was on fire, I never heard any broker argue that their particular market was only lukewarm.

Don't get me wrong, my brother works in sales and I know that being upbeat is one of the keys to survival in a down market. But because they frequently behave like Cubs fans, always holding out hope that this year their team will win the World Series, brokers are not the most objective source on the current state of the industry. That's why The Beige Book, published by the Federal Reserve Board, is a breath of fresh air. Published eight times per year, The Beige Book summarizes economic data and insights from key business contacts and economists in the 12 Federal Reserve Districts.

Far from glowing

If your occupation falls under the cyclical umbrella of commercial real estate, there's good reason to feel blue over the latest Beige Book findings. Nine Districts reported increased office vacancies in metropolitan areas in the second quarter with signs of additional weakening in July. “The rise in vacancies has made it a buyer's market in some metropolitan areas. However, most Districts noted little movement in posted lease rates, with landlords opting for one-time inducements such as a free month's rent or property upgrades to attract tenants,” according to the report.

In San Francisco, where commercial lease rates have declined in the wake of the tech-sector free-fall, prospective tenants appear to be waiting for rates to fall further, the reported stated. “Rising vacancies damped new construction activity in a number of areas.”

The news coming out of the retail sector is nothing to cheer about either. Retail sales were generally sluggish in June and July and frequently below expectations, despite substantial discounting on a wide range of consumer goods, according to the findings. In Boston, the First District, retail respondents expect little growth in the economy in the next year, and most say that they are not expanding their operations in 2001.

Other findings contained in The Beige Book:

• In New York, the Second District, multifamily housing permits for the second quarter fell by about one-third from first-quarter levels and were more than 20% lower than a year ago. Availability rates in Manhattan's office market jumped by nearly two percentage points in the second quarter and asking rents declined at a nearly 10% annual rate. Manhattan's hotel occupancy rate, seasonally-adjusted, fell to a six-year low of 80% in the second quarter, down from 89% a year ago. Meanwhile, room rates are also down 5% in the past year. The hotel figures mark the steepest decline since 1991.

• The Fourth District, Cleveland, reports that demand for office space in central Ohio has dropped dramatically while demand for retail and industrial space has fallen across the District. “According to one source, the low level of new construction inquiries suggests that improvement in the [construction] sector is not imminent.”

• In the Fifth District, Richmond, Va., retailers report markedly lower revenues. Consumer traffic in stores dropped and big-ticket sales contracted sharply. “A big-box retailer in Gastonia, N.C., characterized sales as stagnant.”

• In the Sixth District, Atlanta, commercial lending has slowed. Sublease space has increased in both office and industrial markets across the District, resulting in higher vacancy rates and increased use of rental incentives. Office, industrial and retail construction has slowed significantly and is expected to remain subdued through year-end.

• In the Seventh District, Chicago, one lender noted a rise in “watch/problem” loans, while others reported adding to their loan loss reserves. “This was to be expected, according to one banker, who said that twice as many of his customers were reporting losses on their balance sheets as compared with last year.”

Now, back to happy thoughts. Cubs in seven over the Red Sox?