Construction renovation of a new office in business building window at night
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April brought about a major contraction after demand for office space slowed and improved in the first part of the year. Customs may lie behind it.
In April, 17 of the 19 major office markets tracked by real estate software, analysis and advisory firm VTS had lower demand compared to March. VTS measures office demand by counting people starting an office tour or searching for office space. The flow of new tenants to the office market has decreased by 23% since March, with the required total area down 26%.
According to a report from VTS, there was a noticeable similarity to contractions from March to April 2023 from March to April 2023. From March to April 2023, demand fell 25%, with the required area down 38%.
The office market bounced back at first strong demand in the second half of 2023, but continued with fit and start. That wasn’t the case this time.
“There’s an immediate pull-back response as long as tariffs affect the capital market,” said Max Saia, Vice President of Investor Research at VTS. “We definitely saw rebounds in some markets, but that wasn’t as quickly as we saw the post-bank crisis.”
Another report from JLL looking at the entire second quarter of this year showed that demand for office leases fell 2% after six quarters of growth compared to the previous year. And the Trump administration is now increasing some tariffs again, warning of more in the future.
According to a recent CBRE report, more area will be removed from the US office market for the first time since 2018, and perhaps decades, for the first time in decades.
The stock market has been bounced back strongly since the initial shock of President Donald Trump’s so-called liberation day tariffs, but office tenants are still hesitant. Beyond tariffs there is geopolitical stress, including a conflict between Iran and Israel. At home, there are concerns about the economic impact of the budget bill that passed legislation earlier this month, as well as the still unclear future of tariffs.
“There’s no element of not knowing exactly what the future will be or what will happen,” Sire said.
