Rakow: suburban sublet opportunities abound

Real Estate Weekly, Oct 9, 2002 by Rick Rakow

We recently conducted a survey for one of our customers covering 1,659 properties in Westchester County, N.Y. The purpose of the survey was to report on the fastest growing segment of the market -- sublet space. In the course of our research, we uncovered over 105 sublet opportunities representing 1,020,454 SF of sublet space available in units ranging from 1,559 SF to 117,544 contiguous SF of office space and up to 435,000 SF of warehouse space. The average size of available office space for sublet was 5,444 SF.

This is all good news for the user of office space wishing to take advantage of the situation by subleasing fully improved space at well below market prices. To stem the flow of dollars spent every month on empty space, tenants still on the hook for space they no longer require are often quite willing to offer below market rates to tenants with strong credit.

Most of this space has been built out and is ready for immediate occupancy, quite often with only a coat of fresh paint and a good carpet cleaning, if that much. Subtenants can often acquire the sublessors furniture and telephone systems at pennies on the dollar. While it definitely makes sense for many companies to consider these opportunities, at the same time, tenants must be very careful when negotiating these transactions. As an example, while a direct lease may provide for any necessary construction, this is rarely the case in a sublease where space is more often offered "as-is." However, we are very often successful in negotiating free rent in lieu of construction dollars contributed by the sublessor.

Another factor faced by the potential subtenant is the length of term offered. The sublessor can only offer the remainder of the term to which they originally agreed. Some subtenants are attracted to the flexibility offered by those short terms. Other subtenants want a longer term. In these cases, we typically engage the landlord in simultaneous negotiations which yields our customer a longer lease term, locked in at a below market average effective rental rate. A trained tenant representative, working on behalf of the subtenant, can bring these issues and many others to the fore and help resolve them.

As is so often the case, some things that look too good to be true, often are. Today, more than ever, subtenant's must be very careful to explore the financial stability of the sublessor whose space they are considering. Should the sublessor default on any of the provisions contained in their lease, the landlord can force the subtenant to move or to deal with them on terms the subtenant is sure to find unreasonable. That is why it is important for anyone entering the market to do so guided by a trained professional who can escort you through the process to ensure you do not make any costly mistakes.