How Trump’s tariffs are hurting the office recovery

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After a slow improvement in demand for office space in the first part of this year, April brought a significant contraction. Tariffs may be behind it.

In April, 17 of the 19 major office markets tracked by VTS, a real estate software, analytics and advisory firm, saw decreases in demand compared with March. VTS measures office demand by counting anyone who starts an office tour or searches for office space. The flow of new tenants into the office market dropped by 23% from March, and the total square footage being sought fell 26%.

It bore a striking similarity to the contraction from March to April of 2023, which coincided with the banking crisis tied to the failures of Silicon Valley Bank, Signature Bank and later First Republic Bank, according to the VTS report. From March to April 2023, demand declined 25% and square footage sought decreased 38%.

The office market bounced back later in 2023, with initial strong demand, but then followed in fits and starts. That hasn’t been the case this time around.

“To the extent that tariffs impact the capital markets, there is an immediate pullback reaction,” said Max Saia, vice president of investor research at VTS. “We definitely saw a rebound in some markets, but it was not as immediate as what we saw post banking crisis.”

A separate report from JLL looking at the full second quarter of this year showed office leasing demand down 2% after six straight quarters of year-over-year growth. And the Trump administration is now increasing some tariffs again and warning of more to come.

For the first time since 2018, and likely the first time in decades, more square footage will be removed from the U.S. office market this year than is added to it through new construction, according to a recent report from CBRE.

Equity markets have rebounded strongly since the initial shock of President Donald Trump‘s so-called liberation day tariffs, but would-be office tenants are still hesitant. Beyond the tariffs, there are geopolitical stresses, including the conflict between Iran and Israel. At home there is concern over the economic impact of the budget bill that passed through Congress earlier this month — and a still unclear future for tariffs.

“There is that element of no one knows exactly what the future holds and what’s going to happen,” said Saia.