The Weekly Briefing - March 22nd, 2021

Consumer Spending Kicking the Recovery into the Next Gear as Sentiment Improves

Real-time data shows consumer spending accelerated 5.1% in January compared to the month prior as the second round of stimulus checks hit personal bank accounts. The increase in consumer activity provided a much-needed boost to the recovery, which was showing signs of stalling in late 2020. Average daily spending picked up in every major category during January except health and social assistance. Sectors more reliant on discretionary spending, such as arts and entertainment as well as accommodations and food services, recorded some of the largest gains with double-digit percentage increases compared to the prior month. Final consumer spending data is not yet available for February, but early indications from Opportunity Insights suggest households continued to ramp up purchase activity last month. March could turn out to be another strong month given that consumers are growing more optimistic heading into spring and have added spending power at their disposal due to the third round of stimulus checks currently being distributed. The University of Michigan’s Index of Consumer Sentiment has climbed to the highest level in a year, and the Consumer Confidence Index has improved over the past two months. Percentage Change in Daily Consumer Spending from Dec. 2020 to Jan. 2021 Medical Office Sector Once Again Demonstrating Durability in a Downturn

Medical office buildings (MOBs) have lived up to their reputation over the past year as a relatively resilient asset class despite healthcare company finances suffering from restrictions and delays of elective medical procedures. After dipping in spring 2020, healthcare employment has recovered to approximately -3.5% below pre-pandemic totals compared to a -6.2% decline in nonfarm payrolls. MOB base rents for properties with 10,000+ SF of space have risen 3.5% YOY, surpassing general office rent performance as also occurred during the GFC. MOB vacancies have ticked up over the past year to 9.2% because of a -12.9% YOY slowdown in leasing activity. But the MOB vacancy rate remains approximately 140 basis points below the vacancy rate for all office space. An analysis of CoStar data indicates that MOB market cap rates and median price PSF have barely budged during the pandemic and stand at 8.0% and $213 PSF, respectively. MOBs accounted for roughly one of every ten office trades prior to the pandemic, averaging $12.8 billion in annual transaction volume. Medical Office & All Office Vacancy Rate & Annual Rent Growth (Buildings with 10,000+ SF) Multifamily Developers Pulling Back, While Industrial & Office Construction Activity Holds Steady

One year after the start of pandemic-related lockdowns, multifamily pipeline activity has declined significantly and is falling below Bridge’s internal projections of demand. We expect this may lead to further supply constraints and place upward pressure on prices, especially given that rent growth often ‘pops’ to above-historical averages during the early phase of recovery after a recession. Meanwhile, the pace of development of both industrial and office space continues in line with pre-pandemic trajectories. CoStar estimates there is 325.4 million SF of new inventory underway in the industrial sector, which has seen fundamentals hold steady over the past year as retail spending migrated online and boosted warehouse and logistics demand. Developers are working on 158.7 million SF of new office supply, which is marginally higher than end-2019 totals. In contrast, multifamily, industrial, and office development activity dropped by more than half during the GFC. The amount of construction underway in each sector peaked in the second half of 2007 and took two-and-a-half to three years before bottoming out. Square Feet & Units Under Construction by Property Type

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