Office markets in Atlanta and across the country are in a precarious position, slowly recovering from the upheaval of the COVID-19 pandemic five years ago.
But just as brokers, analysts and corporate landlords begin to see leasing activity rebound, the fast-developing trade war threatens to overturn the market once again. Fears that tariffs could spark a recession, increase layoffs and spike construction costs have the office sector on pins and needles, preparing for any potential spillover effects.
Industry experts say it’s too soon to see any tangible effects tariffs may have on the office market — there are other earlier indicators such as consumer spending and stock prices. But the overall economic uncertainty spurred by global trade disruptions has office experts on edge.
“We had finally hit positive momentum,” Lonnie Hendry, chief product officer at data firm Trepp, said about the nation’s office market, during an April 30 webinar about potential tariff impacts on commercial real estate. “ … But if this (trade war) is prolonged and we go into an economic shutdown and if there starts being layoffs, you could see some real deceleration in the office market.”
Atlanta has grappled with record-high office vacancy rates since the 2020 pandemic, peaking at the end of 2024 with nearly 33% of all office square footage either being unleased or available to rent, according to real estate services firm CBRE. That figure ticked down roughly half a percent during the first quarter and has brokers optimistic the worst days are behind them, especially since leasing activity has steadily increased and return-to-office mandates have gained traction.
Cousins Properties, the largest corporate landlord in Atlanta, has seen its portfolio of high-end office space continue to attract tenants. At the end of March, 90% of its office portfolio was occupied, up about 2% from the same time last year.
Cousins CEO Colin Connolly told investors last week that there are enough tailwinds in the office sector to continue driving demand, even if cracks start to form broadly throughout the economy.
“Many companies are still playing catch-up from not leasing enough space during the pandemic, which has created pent-up demand as the return-to-office (push) intensifies,” he said May 2 on a first quarter earnings call.
Cousins completed 539,000 square feet of leases during the first three months of the year, including a 68,000-square-foot renewal with packaging giant Veritiv at Northpark Town Center in Sandy Springs. Overall, Atlanta saw its best first quarter for leasing activity since 2019.
Credit: NORTHPARK TOWN CENTER
Credit: NORTHPARK TOWN CENTER
High-end office space, which is often called class A or trophy space, has outperformed older buildings in less desirable locations, which the industry calls class B. The bulk of vacancy and distressed office debt in Atlanta and across the country is concentrated in class B buildings, which have not seen the leasing rebound of their more ritzy competition.
Stephen Buschbom, research director at Trepp, said any economic downturn spurred by tariffs will likely be felt first among lower-quality buildings. That creates a challenging investing landscape, especially since many buildings that have struggled to find their place in a post-pandemic economy have seen their values decrease sharply.
“What we’re all trying to figure out is whether this is a buying opportunity or should we continue to be risk-off,” Buschbom said, referencing how many investors choose to wait during economic downturns. “And that’s really an unanswerable question at this point.”
The construction industry is highly exposed to price hikes because of tariffs because vital materials like steel and lumber are common U.S. imports.
And it’s yet to be seen how long some tariffs will be in effect and where other tariffs will land.
On Thursday, President Donald Trump agreed to cut tariffs on U.K. autos, steel and aluminum in a planned trade deal, the Associated Press reported. But Trump’s baseline 10% tariffs against British goods are to stay in place and it’s yet to be seen what negotiations with other countries will yield.
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Connolly said increased construction costs would make it even less likely new office space will be built soon — something already unlikely given the glut of currently unwanted space. He said a silver lining could be that less new supply will further concentrate demand, even in less-desirable buildings.
The larger threat for leasing activity is whether the burgeoning trade war with China will depress consumer spending and prompt layoffs. Companies like Home Depot, Walmart and Target heavily rely on imports to stock their shelves with cheaper goods. And some firms like UPS have already announced layoffs, compounding the effects felt by the purging of federal workers across the country as the Trump Administration looks to cut costs and shrink its workforce.
Buschbom said the office market is still in a vulnerable position, so sudden changes could further erode office values and stall the market’s recovery.
“If we do start seeing the labor market cracks develop, there’s going to be potentially a second leg-down in office valuations,” he said. “And that’s what really does worry me at the end of the day, is that some of the recovery that we’ve seen in the office sector could be given up if we see layoffs pick up.”
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