Sublease Space Will go Away, Expert Predicts

DENVER-There’s currently about 3.4 million sf of sublease space on the market, says Nick Pavlakovich, a senior director and top office broker at Cushman & Wakefield. That, to a large part, is contributing to the overall office vacancy rate, which he estimates at 18%, a bit higher than other firms put it at.

He estimates the Central Business District’s office vacancy rate at 13%, the southeast suburban’s office vacancy rate at 22% to 23%, and northwest corridor’s vacancy rate at 35% to 40%. And another 750,000 sf to 850,000 sf of sublease space will hit the market by the end of the first quarter of 2002, he predicts.

Pavlakovich estimates only 350,000 sf to 400,000 sf of the sublease space hasbeen leased. Yet, a closer examination reveals that the sublease space is not as dire as it has been in other downturns, he says.

“The big difference in earlier downturns is that the sublease space had five to 12 years left on its term,” he says. “Now, we’re dealing with sublease space for two to three years at the most.”

Some sublessors are not coming to the table with property owners who could bring tenant improvement dollars to retrofit the space, he says. Property owners often aren’t motivated to do so, because the company, unless it filed for bankruptcy, is still paying rent, he says.

“For the most part, we’re dealing with physical vacancy, not economic vacancy,” Pavlakovich tells GlobeSt.com.

What that means, in may cases, is that the subleased space will “basically expire. It has kind of a short, useful life.”

At that time, it will revert to direct space from the property owners again. Hopefully, the market will be stronger at that time. Still, property owners would prefer not to have to deal with subleased space.

“The psychological impact of having 3.4 million sf of subleased space is huge,” he says. “In many cases, it is heavily discounted and is competing with direct lease space.