Office Sublease Space Increased by 39% Since Start of COVID-19 Pandemic
by King White, on Jan 26, 2021 11:53:00 AM
Since the start of the COVID-19 pandemic, office sublease space has increased by 39% which equates to 65 million square feet of additional sublease space becoming available across over 200 metro areas in the United States. Currently there is nearly 189 million square feet of office space on the market for sublease according to Costar Group. The main drivers behind these office tenant downsizings are financial problems and/or a shift to work-from-home (WFH). Site Selection Group has evaluated this data to help you develop a real estate strategy to optimize your location decisions.
It could take years to absorb the current sublease inventory
It could take years before the sublease inventory is re-absorbed by other companies unless some companies are simply testing the waters since they don’t want to occupy their offices until the COVID-19 pandemic is resolved. As a result, companies will continue to be burdened with the financial obligations of their lease commitments and never truly take advantage of the perceived real estate savings for years. The competitiveness of the sublease market will clearly require companies to take significant financial hits to successfully dispose of their excess space.
Shift to a tenant-controlled market
The office market bubble is expected to burst in the next year as landlords are faced with insufficient cash flow to cover their loans. As a result, landlords are going to be faced with significant cash flow challenges unless they attract and retain tenants. The positive news is that if you are a tenant needing space or have a lease expiring, then you will have a significant amount of leverage during negotiations. Landlords will desperately seek to secure tenants by offering significant concessions such as free rent, reduced rental rates, tenant improvement allowances, free parking and other inducements.
20 metro areas encompass 75% of the available sublease space
Some metro areas are in worse shape than others. Major urban metro areas such as New York City, San Francisco, Chicago, Los Angeles, Dallas, Washington D.C. and Boston have been hit the hardest as companies have been faced with more challenging COVID restrictions and have limited ability to social distance in the denser urban areas. The following list identifies the top 20 cities for sublease office space on the market:
Top 20 Metro Areas for Available Sublease Office Space
|Rank||Metro Area||Office Space for Sublease (Square Feet)|
|1||New York, NY||27,548,968|
|2||San Francisco, CA||10,925,583|
|4||Los Angeles, CA||9,332,297|
|5||Dallas-Fort Worth, TX||9,211,757|
|13||San Jose, CA||4,473,806|
|15||Northern New Jersey, NJ||4,074,986|
|16||Orange County, CA||3,530,037|
|17||East Bay, CA||3,321,449|
|19||San Diego, CA||2,493,975|
Metro area with the highest increase of sublease space
There has been roughly 20 million square feet of sublease office space added to the market for each of the last four quarters of 2020. At the end of the first quarter, there was 123 million square feet which increased to 189 million square feet by the end of the year. Of the 50 metro areas with the greatest amount of sublease inventory, the following 20 metro areas had the highest increase between the first quarter and fourth quarter of 2020.
Metro Areas with Highest Percentage Increase in Sublease Inventory
|Rank||Metro Area||Q1 2020||Q4 2020||% Change|
|2||San Antonio, TX||302,804||786,188||61.5%|
|10||San Francisco, CA||5,974,032||10,925,583||45.3%|
|11||Saint Louis, MO||651,171||1,174,402||44.6%|
|12||Kansas City, MO||611,608||1,101,662||44.5%|
|14||Long Island, NY||518,885||916,167||43.4%|
|17||Northern New Jersey, NJ||2,343,597||4,074,986||42.5%|
|18||Los Angeles, CA||5,389,063||9,332,297||42.3%|
|19||Salt Lake City, UT||824,504||1,426,617||42.2%|
The office market is going to be in disarray for the next few years as the real estate market recovers and companies figure out their approach to the workplace. Companies need to consider taking advantage of market conditions as the market shifts from one controlled by landlords to one controlled by tenants. If your company is in a position to make decisions about your future office space needs then now is a great time to negotiate with landlords.