Trendspotting: Sublease Availability Is On The Rise

NewsWire: 5/24/22

• In another headache for office landlords, sublease availability across the U.S. is rising. The growing amount of space up for lease comes as landlords face continued low demand due to remote work. (The Wall Street Journal)
  
• NH: Since the pandemic began, the number of office sublease listings has swung back and forth. In spring 2020, levels skyrocketed as companies went remote. But by late 2021, availability decreased as Covid-19 seemed to ebb. Now listings are again on the rise.
• According to CBRE Group (CBRE), available subleases nationally in Q1 2022 rose +3.6% over the previous quarter. In Manhattan, the increase was even larger. While there were 19.5M square feet of available sublease space in Q4 2021, there were 20.3M in Q1 2022. That's a +4.1% increase. But since Q1 2020 (pre-pandemic), sublease space in Manhattan is up +49.3%.

• Some of this rise is due to fluctuating Covid-19 cases, but most of it is due to permanent telecommuting. In fall 2021, many businesses started planning on employees returning to the office. But executives quickly trashed those plans with the explosion of Omicron. With the realization that remote work and hybrid schedules are here to stay, businesses are looking to sublet the unused space. (See "Americans Are Choosing to Work Remotely.”)

• To make matters worse for urban CRE landlords, people are moving away from America's biggest cities and companies are following. As we have written in previous NewsWires, Americans are leaving supercities and moving to the Sunbelt. (See "Which Cities Grew the Most in 2021?") As a result, there is more sublease availability in the Northeast and the West Coast than in the South.
• Will these office spaces ever be filled? In the long term, it's hard to say. But clearly, this will be a headache for office landlords for the foreseeable future. Many property owners are already rapidly dropping rents to fill their buildings. And, as we wrote a few weeks ago, some of these offices are being repurposed. A few office buildings have been converted into housing units. And others are turning into e-commerce warehouses. (See "What's Happening to Vacant Offices?")