Good News for Office Landlords: Sublet Flood Is On the Wane

Article originally posted on HERE on September 14, 2021

Far fewer tenants are putting space on the market compared to last year, and some are taking their spaces back.

As the COVID-19 pandemic in the U.S. reaches its 18-month mark, we are now in a new stage that is changing the equation for both office occupiers and landlords. The highly transmissible Delta variant of the virus is driving up cases and hospitalizations in some regions of the country, largely among the unvaccinated, leading corporate occupiers to struggle with when to bring most of their workers back to the office. At the same time, effective vaccines against COVID-19 are now widely available in the U.S. and last week President Biden announced that the federal government, through OSHA, will require businesses with more than 100 employees to issue vaccine mandates or regular testing for employees who decline to get vaccinated. The new regulations should theoretically make it much easier for large employers to require their workers to come back to in-person work (New York Mayor Bill De Blasio has already done so for the city’s municipal workers starting this week, after mandating vaccination earlier this summer).

As a result, while the amount of sublet office space in the market remains high, the trend of companies putting their offices up for sublease is slowing down with workers gradually returning back to on-site work.

According to a mid-year report from real estate services firm Cushman & Wakefield, the volume of sublet office space in the U.S. doubled over the last year, rising from 67.3 million sq. ft. at the end of the first quarter of 2020 to 132.4 million by the end of the second quarter of 2021. However, the share of sublet space to the market’s total office inventory stood at just 2.4 percent—below the 2.9 percent figure reached during the bust of the early 2000s.

On a national level, suburban properties account for the greatest share of the overall sublet space, at 57 percent, vs. 43 percent in central business districts (CBDs), Cushman & Wakefield researchers found. In Manhattan, the nation’s largest office market, sublet space, at 22.4 million sq. ft., currently makes up 5.5 percent of total inventory. In San Francisco, the share of sublet space as a percent of total inventory is higher, at 9.1 percent, or 11.0 million sq. ft.