U.S. Economic Watch:
Whiplash: From Historic Job Losses to Historic Job Gains

Executive Summary

• 2.5 million jobs were added in May vs. an expected loss of more than 8.3 million—the highest one-month gain in history.
• Many employment relationships remain intact, with 73% of unemployed workers indicating their job loss is classified as “temporary.”
• The unemployment rate fell by 140 bps to 13.3%, despite a 60-basis-point increase in the labor participation rate.
• Nearly half of all job gains were in the hard-hit leisure & hospitality sector. The government sector had the most job losses in May, down by 585,000.
• CBRE expects that a recovery in real estate fundamentals will lag a rebound in the macro economy.

Commercial Real Estate Highlights

• Office: Office-using sectors gained 160,000 jobs in May. Professional & business services increased by 127,000 jobs and financial activities increased by 33,000. Hiring was broad-based across subcategories. Though encouraging, it will take some time to fully rebound from the sharp job losses of March and April. CBRE anticipates office real estate fundamentals will begin to recover in the second half of 2020 but leasing volume will not fully recover until 2022.
• Industrial: Manufacturing gained a healthy 225,000 jobs in May and warehousing & storage gained 8,500. This reflects loosened public health restrictions that allowed production to resume. Industrial real estate fundamentals should begin recovering in the second half of 2020, with a full recovery in leasing volume by Q3 2021.
• Retail: The retail sector, which was very hard-hit by store closures and stay-at-home orders, posted remarkably strong job gains in May. Food services & drinking places gained nearly 1.4 million jobs, perhaps indicating that people are more willing to dine out than was expected soon after lockdown restrictions were eased. The broader retail sector gained nearly 368,000 jobs. Though a recovery in retail real estate fundamentals is expected to begin in the second half of the year, leasing volume is not expected to fully recover until 2024.
• Construction: The construction sector gained 464,000 jobs in May. Many city authorities have taken the opportunity of reduced traffic to fix their roads. The housing market is also picking up because of extremely cheap mortgage finance.
• Health Care: Employment growth in the health-care sector resumed in May, with more than 312,000 jobs added. Hospitals and nursing & residential care facilities recorded job losses, largely due to the disruptive nature of the COVID-19 pandemic and its uneven impacts on the sector.
• Multifamily: Employment growth bodes well the for multifamily sector, but some negative impacts on rent collection could occur as generous unemployment packages likely will be withdrawn or reduced.
• Hotels: The hotel sector remains hit-hard by the cessation of non-essential travel. Accommodation services lost more than 148,000 jobs in May. Although negative impacts on the sector will continue amid restricted travel, occupancy is quickly rising from its COVID-19 low.

The Bottom Line

The May employment report is in line with CBRE’s expectations of a second-half recovery for commercial real estate. It confirms indicators that many of the jobless (73%) are only temporarily unemployed and underscores the impact of the government’s efforts to cushion job losses with the paycheck protection program and other measures.

CBRE expects the economy to continue stabilizing, with a strong recovery taking hold in the second half of the year. This will be supported by pent-up demand and a significant amount of monetary and fiscal stimulus that is coursing through the economy. Continued medical advancements in therapeutics and progress toward a vaccine give additional confidence in this outlook, though risks of COVID-19 flareups remain. The real estate recovery will lag the economic recovery, with multifamily and industrial recovering first, followed by office and retail.