Heading into this year, it looked like the office real estate market was maybe, finally, kinda-sorta turning a corner.
According to the commercial real estate brokerage CBRE, in the last three months of 2024, office leasing activity was up 23% year over year. Companies like Amazon and JPMorgan Chase were instituting strict return-to-office policies, bumping up occupancy rates.
Now, post-"Liberation Day" — well, uncertainty is hitting the office space market again.
If you broke down and snuck a look at your 401(k) over the past couple weeks — don’t worry, I did, too — you may naturally be rethinking your spending decisions for the rest of the year.
Maybe now’s not the right time for that patio expansion with a pizza oven.
Well, when it comes to renting new office space, corporations are just like you and me.
“It’s difficult to make an argument for why companies might lease space right now,” said Ermengarde Jabir, director of Economic Research at Moody’s CRE.
She said with the whiff of possible tariff-induced recession in the air, companies aren’t sure how many employees they’ll need.
“If a recession does come, then companies make cuts. And so that, of course, will be another factor in the amount of office space that companies will require,” said Jabir.
And, in the meantime, corporations might just stick with Zoom.
Lonnie Hendry is at the real estate analytics company Trepp. He said tariffs are also making it more expensive for landlords to upgrade their properties to compete with working from home.
“We've heard a lot of talk around the tariffs being imposed on aluminum, metals, lumber, etc. So if you're an office owner and you're having to spend a lot of additional money to build out space, that puts downward pressure on demand side,” said Hendry.
Hendry said higher end trophy properties — the big skyscrapers that already have the golf simulators and fancy gym next to the conference rooms — they’ll be okay. But your lower tier, less fancy Class B offices?
“Unfortunately I think that's the space that probably gets most impacted right now,” said Hendry.
He said the office market is by no means crumbling, but we’ll have to wait a few months to see how much damage all this uncertainty has caused.
