Office-leasing momentum faces headwinds with tariffs and economic uncertainty

Co-chair of Herrick's Real Estate Department, Jonathan A. Adelsberg, was quoted in an article from the American City Business Journals discussing the potential impact tariffs could have on the office-leasing market. 

The article noted that office-leasing momentum has been picking up in "key markets and sectors," but uncertainty about tariffs and what they mean for any company's future may reverse what Jonathan called an "exponential" increase in office-leasing activity in recent weeks and months.

"With the tariffs, whether it’s real estate or any other market, the uncertainty and the volatility is a very hard situation to navigate," he said. "I’m working on a number of bids, and many are contemplating a significant construction component to it. How are you running your numbers based on these new factors? It’s the million-dollar question. I don’t think anyone has a good answer to it."

Because lease negotiations go on for weeks, if not months, it's tough to say if anyone has decided not to move forward on a deal because of current events and economic uncertainty, Jonathan explained.

The article highlighted that it could take a "couple of quarters before any true slowdown in the national office-leasing market is observed."

In the meantime, Jonathan said he's having at least five different conversations with clients each day about tariffs, including the kinds of provisions — if any — that can be put in place amid so much uncertainty around, for example, construction costs for an office buildout. Questions about who is assuming the added risk — landlord or tenant — amid price volatility are coming up, but it's still too early to say what all of the unpredictability could mean for the leasing market long term.

Groups will likely value-engineer — picking lower-grade carpet or a less expensive wall covering, for example — to find cost savings in office upfits where possible, or source products domestically if they can. If a landlord commits a certain dollar amount to a tenant buildout, that budget will likely not go as far amid all the uncertainty, Jonathan said.

"You can’t close out a construction loan until you have a precise budget," he said. "If your windows now cost $20 instead of $10 and you’re putting 1,000 windows in a building... that is a game changer. You’re going to have protections in agreements with regard to tariffs."

Read the full article in the American City Business Journals here. Access may require a subscription.