There used to be a time that, subleases were seen only as the office space created as a result of failed businesses. But in today’s evolving corporate world, small businesses and Fortune 500 companies are adding to the sublease inventory.
There are many reasons why a sublease changess and they include bankruptcy, consolidation, restructuring, mergers, etc. Recently, the glut of new office space has created a surge in available sublease space.
Besides tenants who “trade up” to new space, some landlords are offering to buy out existing leases to attract tenants into their buildings. This creates a generation of subleases owned by developers who now must actually market space in someone else’s building.
Subleases all over Montreal are being added to the available office space inventory. Subleases can range from 1000 to 200,000 sq. ft. and have 10 months to 8 years remaining on the lease.
Subleases can affect statistics
The sublease issue no impact on market statistics. Most analysts request information based on a building’s vacancy, occupancy or amount of leased space, sublease space often is overlooked. Subleases are overlooked because landlords consider the space leased In any given market at any given time, subleases can play an important role in the overall inventory statistics. Therefore, it is important that national real estate firms and research companies, as well as local shops, include sublease availability in their evaluation of a market. As if newly delivered and first-generation space from previous years were not enough competition, sublease space creates an even more fiercely competitive marketplace. In addition to lower rates on subleases at competing buildings, many landlords have to compete with sublease space in their own new buildings too.
In this scenario, there is a win-win-lose situation. The new tenant wins with a lower effective rate than would have been achieved in the same building through the developer. And the sublessor wins by reducing the losses incurred by unused space. The loser is the developer, who has been deprived of a tenant for some of the building’s first-generation space.
Sublease space can affect lease rates In some markets, as more large tenants include subleases as a solution to their office space needs, developers of newer buildings are being even more aggressive in courting new occupants.
Brokers are becoming involved
How are companies handling the marketing of their sublease space? Obviously, their landlords must market their vacant space first, thereby putting the burden on the tenant. Many metropolitan areas are broker-oriented, so clients quite often request the assistance of the broker who originally put them in that space. But due to the various characteristics of sublease space, including size, layout and other terms, listing a sublease is among the most difficult tasks a broker can assume.
With a broker, the property will be exposed to potential tenants that fit the characteristics of the space and meet the timing and size requirements. The key to the marketability of the sublease, however, depends on how flexible the existing tenant is willing to be.
Tenants looking for new space are becoming more educated about the advantages of subleases, and many of them request to see only sublease space. Subleases are becoming a normal part of a broker’s tour of available space. Soon, some brokers may even specialize in sublease space.
The impact of subleases already has surfaced within the brokerage community. Aggressive marketing, broker parties and flashy, multicolor brochures all are signs of the level of importance being placed on sublease space.