The Weekly Briefing - June 1st, 2020

What Office Workers Are Looking for in Returning to Work As the coronavirus continues to upend the U.S. workforce, the pandemic instilled the thought process that firms would confront this challenge with remote working, potentially permanently. However, a recent survey by Gensler found only 12% of U.S. workers want to work from home full-time, and approximately 30% of workers want to spend three or more days at home each week. What the survey highlights is that the short-term response to the crisis overlooks the long-term creative and cultural benefits of the U.S. office work environment. Over half of respondents to the Gensler survey highlighted socializing and connecting with colleagues as their top motivations, and over 40% cited access to technology and an ability to focus as important. We posit that firms and employees alike seek to reengage in-person and in real-time as opposed to a scheduled virtual environment. This will have meaningful implications in a post-COVID-19 world as social distancing practices will result in some reconceptualizing of reoccupied offices.

Unemployment Claims Stabilizing, but U.S. Experiencing More Turmoil than Other Major Economies Continuing unemployment claims across the U.S. declined for the first time since the onset of the pandemic during the week ending on May 16th—the most recent week of available data—providing hope that the economy has moved beyond the worst job losses as states begin to reopen. Last week, the presidents of both the New York and St. Louis Federal Reserve Banks expressed hope that the U.S. economy is at or nearing the bottom of downturn. Despite the relative improvement in continued claims, however, labor markets continue to experience a substantial degree of turmoil as 2.1 million new initial claims were filed during the week ending May 23rd. The figure represents a 69% decrease compared to the record-high registered in late March but remains approximately 10 times higher than the pre-pandemic weekly average, underscoring the long road to full recovery. U.S. Weekly Initial & Continuing Unemployment Claims In comparison to its global peers, the U.S. has been among the hardest hit economies in terms of job losses. The IMF estimates the U.S. annual employment rate will rise 6.7 percentage points over the course of 2020, at least three times higher than the expected increase for other major economies. This estimate for 2020 is well below the current official unemployment rate but relatively in-line with the U.S. Congressional Budget Office’s interim projections of 11.5% for 2020. Major Economies Unemployment Rates: 2019 Actual & 2020 Forecast

Government Support Pushes Incomes Higher as Consumers Show More Caution on Spending Total personal income in the U.S. surged 10.5% in April as federal aid programs more than made up for income lost to unemployment and reduction of hours. The stimulus provided a crucial, short-term buffer for households to cover expenses for basic necessities. One-time stimulus checks to households and expanded unemployment benefits explain most of the increase in government support. Based on data from the Bureau of Economic Analysis (BEA, updated Friday, May 29), enhanced unemployment and other transfers to households injected $2.9 trillion into April personal income, or 12.3% of total income. Breaking down the BEA data, from March to April the following notable observations provide some detail of unemployment payments compared to stimulus measures. Unemployment insurance increased from $69.6 billion to $430.1 billion; “Other” transfers increased from $528.3 billion to $3,122.1 trillion; and When combined, these two increases make up 98.5% of the total increase in transfer payments. Despite the higher income levels, consumers ratcheted back spending on personal expenditures in the face of government restrictions as well as concerns about their financial prospects. Consumer spending dropped 13.6% month-on-month, the largest decline ever registered in a data series that tracks back to 1959, as consumer sentiment surveys showed significant deterioration. The lower spending and higher income levels combined to boost the personal savings rate to a record level of 33.0%. The previous record for personal savings was 17.3% in 1975 with the long-term average dating back to 1959 at 8.9%. U.S. Personal Income & Savings Rate

Federal Reserve Reports Continued Economic Distress in Most Recent Beige Book The Federal Reserve has seen few signs to date of sustained economic improvements based on the most recent Beige Book, which was released last week in advance of upcoming market committee meetings. Businesses for essentially every regional bank expressed continued concern about the short-term economic outlook. The Atlanta District reported ‘weak’ activity in the labor market as well as further declines in consumer spending, in line with national trends noted above. Manufacturing activity contracted and hospitality contacts reported record low revenue levels. Demand for homes weakened, but home prices held steady while cancellations for new home purchases were lower than expected. The San Francisco District similarly reported a stark decline in economic output due to the COVID outbreak, impacting retail, manufacturing and even the agriculture sector, which saw activity slow. Residential construction was mixed overall with many areas restarting projects that had been halted, and home sales fell except for a few select markets in California and Idaho. In the Dallas District, the energy and service sectors were among the hardest hit while manufacturing output continued to decline. Employment and hours worked both fell sharply while home sales declined through mid-April before showing some improvement.

Disclosures and Disclaimers

This is a general analysis of the real estate market prepared by Bridge Investment Group LLC (“Bridge”) and is not related to any specific products or services of Bridge or any affiliate. Sources for statistics and other factual data included herein are maintained by Bridge Research. Such data has not been verified by Bridge and we can give no assurance that it is accurate or complete. Statements contained herein that are nonfactual constitute opinions of Bridge, which are subject to change. Financial projections contained herein are estimates only and are based on assumptions, including assumptions regarding future rent growth, the availability and cost of financing, changes in market capitalization rates, and various micro- and macro-economic trends. No assurance can be given that either the projections or the assumptions will prove to be accurate. Investment in real estate involves substantial risk of loss.

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