What To Expect From Shrinking Sublease Space
November 02, 2010
Have you noticed that the inventory of corporate sublease space is shrinking? During the third quarter of this year, sublease space inventory dropped by approximately 11% compared to the levels of the previous quarter. That marks the biggest sublease space inventory decline since late 2005 when companies were aggressively leasing additional space in order to accommodate growth.
What factors are responsible for this and what does it mean for you? According to CFO’s that I am in contact with, this is not an indication of new tenants coming on stream or companies expanding their space. This trend can be attributed to companies that had the sublease space on the market and decided to pull it off. That way they will have the option to keep the space for themselves in the event that they need it as the market turns around. Apparently, many companies see this as a way to maintain flexibility in the market. The CFO’s I talk to believe we are at the bottom of the cycle and their crystal ball shows some growth albeit slow and measured.
You might expect this behavior in the market to cause landlords to start raising rental rates as the supply of sublease space starts to diminish. This has not happened and the reason is tenant demand – while new activity is starting to show life, it is still weak. What will it take to trigger new demand for space and higher rates? More jobs. Until job creation happens corporations will not take on any more real estate obligations.
So tenants, you are still in the driver seat.
If you would like thought leadership and more aggressive solutions with your next real estate initiative, please call us.
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