Sublease Shock: Is the Sublease Supply Surge Coming to an End?
The sublease supply has changed drastically since the pandemic began in March of 2020. One of the most substantial changes is that the sublease supply has increased by 78%. However, after experiencing this large increase, the sublease supply fell by nearly 1.5% in August.
The decline in the sublease supply is partly due to the lack of new space being placed on the market this summer by occupiers. In comparison to Q3 2020, Q2 2021 sublease inventory declined by 62% in quarterly additions.
A Rise in Reoccupation and Leasing Leads to a Decrease in Existing Sublease Space.
A secondary factor affecting the availability of sublease space is the increase in tenants who are reoccupying or leasing existing space. Since Q2 2020, sublease space withdrawals by tenants have risen 148%.
Before the pandemic, on average, only 10% of national new leasing activity was sublease activity. This number is significantly less than the Preliminary data signifying that over 25% of all national new leasing activity was sublease activity in Q3 2021.
Direct space is priced 10% to 15% above similar Class A space in downtown high-price areas. As well as being priced better, sublease space rarely requires tenant fit outs, decreasing the cost even further. Due to this, sublease space is becoming increasingly attractive for occupiers, especially those looking to reduce their expenses.
A Decrease in Availability of Sublease Space Expected to Continue Throughout 2021 and into 2022.
Over 70% of markets in the U.S. have already surpassed their peak level availability of sublease space. Since culminating in Q1 and Q2 of 2021, cities with a high concentration of sublease space are now all experiencing decreases. The amount of sublease space leased or reoccupied is simply too high to be compensated for with new additions.
Avir Realty Group, Inc. is a commercial real estate investment, and development group focused on investing in and then redeveloping or repositioning industrial and suburban office properties.