Manhattan's Trophy Office Owners Won't Let Tariffs Rain On Their Parade

Manhattan’s office market has been gathering velocity steadily over the past year, but some owners might be in for yet another unwelcome speed bump.

With the city coming off its most active leasing quarter since 2019, many landlords are building out spaces for their growing tenants and are now forced to find ways to absorb or avoid the costs of new tariffs on construction materials, not to mention weather the economic uncertainty. 

“We haven't had a lease pulled,” Vornado Realty Trust Executive Vice President for Office Leasing and co-Head of Real Estate Glen Weiss said at Bisnow’s 2025 New York Office and Workplace conference last week. “But I'm being very mindful of it.”

Construction firms are monitoring prices and talking with owners about switching to locally sourced materials, using prefabricated construction methods for build-outs and other challenges as they arise, JRM Construction Vice President Antonina Caruso said onstage at Vornado’s 1290 Sixth Ave.

“What we're seeing on the office side, anyway, from tenants is somewhere between 2 to 6% of increase in projection of build-out costs,” Columbia Property Trust Head of Real Estate Ted Koltis said onstage. “That's what we've seen probably in the last 30, 60 days in anything that's committed.”

It's especially a challenge for developers and contractors who signed guaranteed maximum price contracts, or GMPs, with tenants to build out their space. Savanna President Chris Schlank said his firm is considering a change in its supply chain rather than simply eating the added costs.

“Anybody who tells you that they signed a GMP in this world and they have no exposure to tariffs doesn't know what they're talking about,” he said onstage. “We absolutely have exposure, and it's how you mitigate that exposure.”

The White House's tariff policies haven’t affected the leasing market yet, but there’s no guarantee that they won’t, said Bruce Mosler, chairman of Cushman & Wakefield’s global brokerage practice

“Some deals have slowed down, but it would be unfair to say that we know precisely how this will affect the balance of the year,” he said. “How this looks in the long-term depends on whether we can take some of the uncertainty that the back and forth has created and create a little certainty and stability.”

But best-in-class Manhattan office space is getting harder to come by. The first quarter was the most active period of leasing since 2019, driving vacancy at the top end of the market down to 9.2%, according to JLL research. There is an additional 4.3M SF under construction, but nearly two-thirds of that is spoken for.

“We’re entering a landlord’s market quickly, and we’re going to see a spike in rent soon,” Weiss said. “We're feeling very good about what's to come.” 

Mosler said the number of large blocks of top-quality space left on the market could be down to the single digits. Nevertheless, the city's overall vacancy rate is still elevated at 15.5% as Class-B and C landlords have struggled to sign tenants at the same rate.

“I will tell you that there was almost nothing left on Sixth Avenue [that’s] 50K SF or greater,” Mosler said. “The market continues to bifurcate, and the better end of space is moving. Eventually this will traverse across to Class-A.”

With no sign of demand slowing down, Yellowstone Real Estate CEO Isaac Hera said New York is set up to be more resilient to tariff impacts.

“In New York, a lot of your cost is labor, and there are no tariffs on labor,” he said. 

Certain materials developers are used to importing. Savanna has typically sourced glass or aluminum products for office, multifamily or other assets from China. Now, Schlank said he is considering charging clients an additional 4% in order to use American aluminum, export it to Colombia for processing and then shipping it back to the U.S. 

“For us, we're trying to think, ‘OK, we have to have a certain upcharge right now, because it's more expensive to buy in the United States, or a very uncertain quantum in China,’” he said. “And I think we're probably going to end up in that scenario going domestic.” 

Citadel is one of the companies that has been caught in the middle of the ongoing tariff battle, said Paul Darrah, Citadel’s chief workplace officer. The firm is currently in the middle of building out its 500K SF space at Brookfield Properties’ 660 Fifth Ave. and has been forced to switch out materials that might have otherwise come from places like Italy, he said.

Still, the tariffs might end up benefitting Citadel’s outfits in other parts of the world, he said. Citadel is also opening a new 500K SF London office, and if Europe isn’t exporting materials like steel to the U.S., that could lower costs in the UK.

“The conversations with the teams in London, when I asked, ‘Well, how are the tariffs impacting our project?’ We really don't buy anything from the United States, and if we do, it's really the [audiovisual] equipment, and we'll just buy that from China,” Darrah said. “In one way, it's benefiting us, and then obviously it's creating a bunch of uncertainty that we just need to manage.”

UPDATE, MAY 22, 9:52 A.M. ET: This story has been updated to provide more context about Citadel's London office.