Manulife US REIT - Annual Report 2020

U.S. Economy Overview • As the economy continues to recover, employment is now just 6.3% below its previous peak and even closer at 3.9% for professional services. • Containing second wave of COVID-19 and ability to vaccinate at scale will be critical in determining the rate of rebound. • Additional fiscal stimulus is currently in negotiation, but likely to be decided in the coming weeks. December and a political stalemate, a second stimulus of $900 billion with smaller and more targeted aid as well as an extension of business and unemployment programs passed as part of the more comprehensive Consolidated Appropriations Act for 2021. In line with the flipping of the Senate and the executive branch, there is an expectation for a third round of stimulus, although what form this will take is not yet clear. Importantly for the office market, the COVID-19 pandemic is a service-rather than office-driven downturn: office- using employment has held up remarkably well, with the segments of professional services yet to recover mostly within building services and other on-site requirements currently with limited demand due to stay-at-home advisories and requirements. There has been an uptick in permanent layoffs due to the prolonged macroeconomic slowdown, but this is low in comparison to the drop-off in leisure and hospitality employment and activity. The economic recovery will likely take hold beginning in the latter portion of Q2 and into Q3 2021 once vaccines are widely available outside of front-line workers and those over the age of 65, enabling an opening up of many businesses with less risk of straining health care capacity. In the interim, unemployment will see a short-term increase – already borne out in initial claims – given seasonality and the current surge in cases leading to a reduction in overall activity. Further immediate relief will stabilize economic conditions and improve cash-on-hand for consumers to maintain spending, while longer-term infrastructure and health investments will boost GDP in the coming years. Weekly Unemployment Plateauing after Second Spike 8 7 6 5 4 3 2 1 0 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Initial Unemployment Claims (millions) The effects of COVID-19 have been profound: from February through April, the labor market contracted by 22.2 million jobs, equivalent to 14.5% of pre-pandemic employment but has since rebounded to 6.3% below its previous peak and even closer for office-using sectors such as professional services. Similarly, GDP now stands at 2.4% below its Q4 2019 peak as it benefits from growing spending and investment. In an effort to combat the economic fallout from the pandemic, Congress passed an unprecedented stimulus in the form of the Coronavirus Aid, Relief and Economic Security (CARES) Act. This included a package valued at roughly $2.2 trillion comprising direct payments, the Paycheck Protection Program (PPP), industry-specific bailouts and state and local government funding along with enhanced unemployment benefits to supplement state payments. After expiration in Jobs Recovery is Trending towards A “W” rather than A “V” COVID-19 (2020) Financial Crisis (2008) Dot-com Bubble (2001) 5 0 -5 -10 -15 -20 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 Employment Change from Previous Peak (%) Months to recovery from previous peak Subdued Consumer Confidence to Weigh on Spending 160 140 120 100 80 60 40 20 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Consumer Confidence Index Real Gdp Nearing Pre-Covid-19 Levels, Down 2.8% Y-O-Y Real GDP Year-over-year (Y-oY) change 20 18 16 14 12 5 0 -5 -10 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Real GDP ($ trillions) Y-o-Y change (%) 39 ANNUAL REPORT 2020 INDEPENDENT MARKET REPORT By JLL as of 31 December 2020