The COVID-19 pandemic and sharp economic downturn will lead to rapidly increasing unemployment over the next quarter and higher office vacancies in the near term. But if progress continues in containing COVID-19 and corporate occupiers can generally continue to withstand the short-term upheaval, the direst scenarios for office vacancies may be averted.
Office jobs appeared to hold steady in the U.S. Bureau of Labor Statistics’ March employment report, which reflected some of the initial impact of COVID-19. Most of the 701,000 jobs lost in March were concentrated in restaurants and bars, retailers (e.g., clothing and furniture), day-care services, and dental and non-essential medical providers (see Figure 1).
Total office-using employment declined by only 51,000 jobs in March, almost all of which were in the temporary staffing industry—historically one of the first sectors to be hit in an economic downturn.
Figure 1: U.S. Employment Change (February - March 2020)
Source: U.S. Bureau of Labor Statistics, CBRE Research, Q1 2020.
The March employment report reconciles with CBRE’s preliminary data for U.S. office markets in Q1 2020, which indicated that the national vacancy rate posted a relatively modest increase of 20 basis points (bps) to 12.3%. While this was the largest jump in the U.S. office vacancy rate since 2010, CBRE’s pre-COVID-19 forecasts for Q1 anticipated a 10-bp increase in the national vacancy rate due to slowing demand and rising supply. As a result, the preliminary data showing an increase of 20 bps is not surprising, nor a cause for alarm.
Surging unemployment insurance claims, however, will cause an inevitable rise in the unemployment rate, which undoubtedly will include more office-using jobs. But the most recent insights on unemployment claims from various state labor departments make only infrequent references to office-using sectors. Regardless, the next month will be pivotal in seeing how well office users have adjusted to work-from-home strategies and how vulnerable they are to more severe effects of the COVID-19 pandemic.
Figure 2: U.S. Office Vacancy Rate
Source: CBRE Econometric Advisors, Q1 2020.