The nation's largest office landlords say the market's recovery is playing a long-haul game positioned to withstand some of the immediate macroeconomic bumps — at least for now.
Those such as BXP, Hudson Pacific Properties, Vornado Realty Trust, Kilroy Realty and Highwoods Properties have said there has been no drop-off in leasing momentum or pullback in deals, a sign that companies are investing in growing their real estate portfolios alongside escalating office mandates.
The landlords agree that the market is staying the course on its long road to recovery while hurdles such as tariffs, stubbornly high interest rates and the possibility of a recession have wreaked havoc around the world.
"We're well positioned to continue this outperformance amid the economic uncertainty of government cutbacks, global tariffs, and the potential of a looming recession, just to name a few," Brian Leary, the chief operating officer of Sun Belt-focused landlord Highwoods Properties, said on the company's recent earnings call. "We recognize that our markets and business are not sheltered from these headwinds on the whole, but on the margin, we can report that today they have not deterred our customers and prospects from executing leases and committing to office space."
New leasing volume in the first three months of the year surged close to levels not seen since the onset of the pandemic, CoStar data shows. A greater share of tenants took over space as opposed to offloading it. Construction starts are at historic lows, providing a tailwind for the national vacancy rate that remains at a record high of 14%.
"We have seen no impact in the leasing market to date" from tariffs, Cousins Properties CEO Colin Connolly told analysts earlier this month. "Demand remains robust across our markets and broad-based across industries. 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 intensifies."
Two roads to recovery
Hudson Pacific Properties, with a portfolio encompassing some of the hardest-hit office markets in the country, signed more than 60 leases through the first quarter of the year, a combination of new and renewal agreements that totaled just shy of 630,300 square feet. To compare, Hudson signed about 500,000 square feet across 73 deals for the same period last year. It also reported a leasing pipeline that surpassed 2.1 million square feet as tenants prove willing to commit to longer-term deals despite mounting turbulence and uncertainty.
"We're closely monitoring the potential effects of tariffs on our core industries, but to date, we have not experienced any tariff-related impacts to tenant demand," Hudson CEO Victor Coleman told analysts on the real estate investment trust's earnings call. "Rather we continue to see signs of improving or stabilizing fundamentals."
To be clear, the overall health of the office market falls into two distinct camps: a stable and strengthening premium segment versus a struggling and financially stressed lower-tier one. The owners behind portfolios of high-end office space have benefited as vacancy rates for the upper tier of the segment are about 13% compared to roughly 19% for the rest of the market, according to CBRE data.
Tenants collectively handed back upward of 65 million square feet last year, boosting the total to more than 180 million square feet of move-outs since the start of 2020, according to CoStar data. What's more, the leases that are being signed these days have shrunk considerably, averaging about 20% smaller than their pre-pandemic averages.
Even so, the lingering impacts of the pandemic and mounting economic uncertainty have yet to hamper the momentum building across the upper slice of the nation's office market.
"We're experiencing a pretty bifurcated market in terms of quality space and the lack thereof, and since we're not seeing a lot of development supply in the pipeline, we're seeing more momentum and urgency as organizations look to lock down the kind of best-of-the-best space they really want," Amber Schiada, JLL's head of work dynamics research, told CoStar News. "There have been a lot of challenges since the start of the year in terms of uncertainty and macroeconomic conditions, but what's holding true is the strong desire to occupy the best-quality spaces."
'Keeping a weather eye'
All said, the office market won't be immune to what could ultimately transform into an official recession.
Market volatility and opaque tariff resolutions could dampen tenants' outlook and result in them pulling back from real estate commitments. Landlords, especially those behind older and financially challenged properties, could face even greater hurdles in filling their spaces, and the high cost of capital could prevent many from making the investments they need to reposition their buildings.
While companies leased more office space during the first three months of 2025 than in any quarter since 2019, defaults still remain well above pre-pandemic levels, and many cities are faced with a swath of hollow buildings that will need a substantial amount of capital in order to reposition them or convert them to alternative uses.
For Los Angeles-based Douglas Emmett, that uncertainty has meant the real estate investment trust is keeping a close eye on the road ahead, but it hasn't seen anything that is a particular cause for concern or panic so far.
"Our office leasing pipeline remains healthy, but we are keeping a weather eye towards the broader economic landscape," company President and CEO Jordan Kaplan recently told analysts. "Volatility in national policies affecting the public markets could pose even greater challenges if they lead to a slowdown in office leasing, or worse, tip the economy into a recession. Whatever happens, our operating platform is built to weather storms."