WASHINGTON (MNI) – The following is the second and final part of
the text of the Federal Reserve’s Beige Book survey from the Boston
district, published Wednesday:

Selected Business Services

Advertising and consulting contacts in the First District report
significant growth in demand during the fourth quarter of 2010, with
increases in revenue ranging from 5 percent to 30 percent. Most contacts
attribute the rise to pent-up demand across many sectors and industries,
as clients have been restrained by economic conditions since 2008.
Responding firms held their prices steady or increased them slightly in
the fourth quarter; some are planning to raise prices about 5 percent in
2011. Changes in business costs vary, with some firms citing stable
wages, some raising compensation, and one firm cutting costs by hiring
lower wage-rate replacements for selected employees. All contacts plan
to increase employment next year to meet recent and expected increases
in demand, with net hiring of 5 percent to 20 percent. Some of them
expect salaries to stay stable through 2011, while some expect modest
increases.

Most contacts are highly optimistic about their near-term
performance and throughout 2011, mostly based on the increased volume of
deals already secured and growing inquiries from clients. Expectations
about general economic recovery in 2011 contribute to these projections
as well. They expect annual growth in revenue ranging from 5 percent to
15 percent.

Commercial Real Estate

New England’s commercial real estate market was stable in recent
weeks. In Boston, a steady volume of lease renewals generated
significant revenue for brokers but resulted in little to no net
absorption. For the year, office vacancy increased in greater Boston
and, according to one contact, is currently in the high teens in the
Financial District, while Back Bay and Cambridge enjoy much lower rates
(below 10 percent). In Providence and Portland, modest positive
absorption is cited in core downtown districts, as tenants are eager to
sign deals to take advantage of low rental rates, which are not expected
to persist much longer. In Hartford, the vacancy rate for downtown,
class A office space was placed at 24 percent for the third quarter;
there is some expectation that the city’s office absorption rate will
turn modestly positive in 2011. Construction remains limited across the
region, with the exception of the multifamily sector, which continues to
attract strong investor interest and very attractive financing terms.
Based on recent sales prices, one Boston lender to commercial real
estate is concerned that the city’s multifamily market may be
“overheating.”

The outlook ranges from quite cautious to solidly optimistic.
Boston and Hartford contacts expect slow growth and only limited
absorption in 2011. Prospects for absorption in 2011 were more robust in
Providence and Portland, and a Boston banking contact expects very
strong loan demand for commercial properties throughout 2011. No
contacts are predicting a “double-dip” in the commercial real estate
market (nor for the economy as a whole). Nonetheless, a few are
concerned that commercial foreclosures could increase in 2011, putting
downward pressure on property values.

Residential Real Estate

Home and condo sales in the First District continued to show
significant year-over-year declines in November, as many contacts had
expected. Respondents say the large year-over-year declines throughout
New England partially stem from the extra boost in activity observed in
November 2009 when the first-time homebuyer tax credit was originally
set to expire. Nonetheless, home and condo sales activity remains
sluggish by any measure throughout the region, with all contacts
anticipating that total 2010 sales will fall short of 2009. Meanwhile,
the median price of homes continues to edge up in the New England
states, with the exception of New Hampshire, which observed another
month of year-over-year price declines. Contacts attribute increasing
median home prices to relatively higher sales of more expensive
properties rather than a general upward movement in home prices.
Second-home purchases continue to fare well relative to other segments
of the market, as higher income buyers take advantage of low mortgage
rates and a large inventory of discounted homes. Most contacts report
that inventory levels are rising; they do not see this as a source of
concern except for a contact in New Hampshire, where the November months
of supply exceeded other states in the region.

Contacts anticipate a continuation of current sluggish activity
levels into 2011, with fewer swings than in 2010. Some respondents
express concern about possible tax reforms restricting the mortgage
interest deduction.

(2 of 2)

** Market News International Washington Bureau: 202-371-2121 **

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