Executive Summary

  • The U.S. added 559,000 jobs in May, below expectations of 671,000. Leisure & hospitality led all sectors with 292,000 jobs added.
  • The yield on the 10-year Treasury fell below 1.6% as investors assessed a more moderate pace of job growth and the lower-for-longer interest rate environment.
  • The unemployment rate fell by 30 basis points (bps) to 5.8% and the labor participation rate decreased by 10 bps to 61.6%.
  • CBRE expects robust economic growth in 2021 that will fuel demand for commercial real estate.

Commercial Real Estate Highlights

  • Office: Office-using jobs increased by 34,000 in May. Professional & business services gained 35,000, while financial activities lost 1,000. CBRE expects office demand to gradually increase as more workplaces reopen this summer.
  • Industrial: The warehousing & storage sector gained 1,800 jobs in May and manufacturing gained 23,000. Robust economic growth fueled by consumer demand will continue to support strong industrial & logistics market fundamentals.
  • Retail: Traditional retail lost 5,800 jobs in May, while food services & drinking places gained 186,000. The overall gain in jobs is encouraging for retail real estate, as is rising consumer confidence amid an improving public health environment and strong economic growth.
  • Construction: The construction sector lost 20,000 jobs in May. The sector continues to benefit from low interest rates but is hampered by acute supply-chain disruptions, shortages of materials and shifts in labor demand from commercial to single-family residential construction. CBRE expects these challenges will begin to abate in the second half of the year.
  • Health Care: Health care gained 22,500 jobs in May. Ambulatory health care (outpatient services) gained 22,000, while hospitals gained 2,900 and nursing & residential care lost 2,400. As effects of the pandemic wane, CBRE expects that demographic trends and new technologies will fuel increased demand for health care properties.
  • Hotels: Accommodation services gained 34,600 jobs in May. CBRE expects an uneven recovery for the hotel industry over the next 36 months, with domestic leisure travel destinations recovering first and business travel destinations rebounding more gradually. The outlook is brightening as leisure travel volume has largely recovered and companies begin to resume business travel.
  • Multifamily: Continued strong economic growth supports household formation and ability to pay rent. The outlook for the urban multifamily market is improving as large cities loosen restrictions and offices reopen. Demographic trends and single-family housing affordability issues will also continue to support multifamily demand.

The Bottom Line

The U.S. added 559,000 jobs in May, below expectations of 671,000 but in line with CBRE’s forecast. There still are 7.6 million fewer people employed than before the pandemic and the labor participation rate is 1.7 percentage points below its pre-pandemic level. All of this supports the Fed’s low interest rate stance. Furthermore, average hourly earnings were up by only 1.9%, supporting the Fed’s view that any impacts from rising inflation will be short term. Today’s drop in Treasury yields reflects investors’ support for this view.

CBRE continues to expect robust economic growth for the rest of 2021. This will aid commercial real estate’s recovery, although certain sectors like office, retail and hotels will lag. Overall, the May jobs report supports the Fed’s policy stance as well as our optimistic view for the commercial real estate market.

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