Where Did All the Subleases Go?

By Wes Vaughan

(posted on Cresa Atlanta’s Blog 5/16/12: http://www.cresa.com/atlanta/blog/2012/05/where-did-all-the-subleases-go/)

It seems that not too long ago, sublease space was everywhere in Atlanta, in various shapes, sizes and locations. Sublease space was (and still is) a worthy option for tenants on the hunt for office space, especially newer businesses, smaller businesses and companies looking for flexible options and reduced rental rates. During the worst times of the economic downturn in 2008-2009, tenants could find a wide number of viable sublease candidates in many of the Class A buildings of Atlanta. Today? Not so much.

By the numbers* (subleases in Class “A” buildings only):

  • – In 2008, Buckhead had over 468,000 square feet (SF) of sublease space on the market; by the end of 2011, there was only 180,000 SF
  • – Midtown had almost 600,000 SF of sublease space in mid-2009; today – around 316,000 SF
  • – Central Perimeter had a whopping 982,000 SF in mid-2008; down to only 376,000 SF in 2012
  • – Cumberland-Galleria: 917,000 SF at start of 2009; now almost 30 percent decline at only 310,000 SF in 2012
  • – North Fulton: 936,000 SF in mid-2010;  but less than 387,000 SF at the end of 2011

*source: CoStar

Keep in mind that the numbers above have some extra padding because they also include “sublease space” being marketed by executive suite companies such as Regus. Let’s pretend that you are a company looking for sublease space between 1,000 to 5,000 SF with more than one year of term left. As of today, you would only find one space in Buckhead, two spaces in Midtown and two spaces in Central Perimeter. If you were to stretch your square footage to the range of 5,000 SF to 10,000 SF, you wouldn’t fare much better in Buckhead or Midtown; only eight spaces are currently available. The available subleases for larger tenants are a bit more plentiful, up to 46 between the five submarkets mentioned above.

So why is this? Did the sublease supply dry up due to the heavy demand … or is this yet another sign our market is improving? Perhaps both. As we have seen in Atlanta the past few years, many tenants in less desirable buildings or suburban markets were lured away by the “unbelievable” deals being offered from the in-town Class “A” properties. Subleases offer much of the same “flight to quality” appeal for many tenants. Tenants who were lucky enough to time the market correctly quickly pounced on this space and found themselves in some fancy offices in some of the nicest digs in Atlanta…at a heavily discounted rate from what the landlord was offering.

One man’s trash is another man’s treasure, right? Many businesses needed to dump their excess office space in order to cut costs, and there were other companies that were happy to take it off their hands. Of course, some of the sublease glut we saw three to four years ago was taken off the market for various reasons; some because they simply could not sublease the space (yes, there are some doggish subleases not worth considering) but others because their business started improving over time and they needed to reoccupy the space, which at the end of the day is good for everyone!

Tenants are finally starting to grow again (hallelujah!) and the market is pulling towards a recovery. Tenants looking for deals, subleases included, need to get active now before landlords take back the reins.

As an expert in commercial real estate, Cresa Atlanta specializes in representing the tenant’s best interests and reducing overall occupancy costs. Our professional “menu” includes:

  • – Marketing your excess space for sublease (as noted, there is a supply shortage)
  • – Renewing and/or restructuring your lease early (one or more years prior to renewal)
  • – Finding the right space for your company – directly with a landlord or through an economical sublease (if there are any left!)
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