Marketing Your Office Space for Sublease
By: David J. Rubenstein, Principal, The Miller Richmond Company
There are many reasons companies choose to market excess or unneeded space for sublease. However experience shows that it is important to identify potential hurdles, fully understand what you have to sell, and develop a strategy to efficiently complete a successful sublease transaction. The following are 10 key factors to consider when contemplating a sublease:
1. Your Lease – Review the sublease/assignment provision in your lease to determine (a) if you have a contractual right to sublease, (b) the sublease conditions, and (c) the various landlord rights including right to approve or disapprove a sublease, or even the right to recapture your space.
2. Market – Explore the overall health of your particular market taking into consideration vacancy rate, lease-up time (time to market the space), rates being charged, and concessions being offered in your building and the surrounding area.
3. Building – Understand the desirability of your building and your space (quality, views, parking, efficiency of floor plates and space plan, location, and availability of furniture and systems, etc.) Make sure it is clean and shows well.
4. Landlord – Determine the willingness of your building owner to work with potential subtenants regarding additional requirements such as an extension of lease term, physical expansion of the suite, signage, additional parking, etc.
5. Parking – Examine the availability, number and cost of employee and visitor parking in your building. While often considered late in the negotiation process, parking can make or break a commercial real estate transaction.
6. Term – Remember that generally, the longer the term, the more marketable the space, unless the term is unusually long. A three to five year sublease term is attractive to most prospective subtenants. In addition, renewal options are an added benefit to the subleasing effort, but often leases call for a cancellation of options if the space is subleased to an unaffiliated party.
7. Concessions – Consider offering a combination of tenant improvements, rental/parking fee abatements, architectural/moving/furniture/cabling allowances, etc. Depending on the market, concessions are employed to entice prospective subtenants to accept a space that might not be ideally configured for their needs. Fully furnished space with a phone system in place is often attractive to subtenants who need to get into new space quickly.
8. Deliverability – Keep in mind that if your space is not vacant, it is critical to know specifically when you can vacate. Potential subtenants want a date certain for their occupancy – typically, the sooner, the better.
9. Risk/Underwriting – Realize that potential subtenants will want to evaluate your financial stability/risk of default as a tenant on your direct lease. For example, if you default with your landlord, your subtenant could lose its rights to your space. This is particularly relevant if you are subleasing your space because of a business setback and/or if you are subleasing your space at a rent well below the rent you paying to your landlord.
10. Quoted rental rate – Recognize that your asking rental rate is a critical component for potential subtenants “looking for deals.” In general, with an aggressive “below market” asking rental rate, you can reduce your marketing time. Since subtenants are bargain hunters, your ability to undercut those who may be marketing more desirable spaces (direct or sublease) in more attractive buildings is important to your success. A low price is often an exchange that a subtenant is willing to accept in order to lease space that may not fit its needs exactly. We almost always advise our clients to specify an asking rental rate in their listings as opposed to saying “negotiable.” We believe that this approach can save all parties time and will not scare away prospective subtenants who may assume incorrectly the price is too high for them.
While the above points outline important issues to consider, they are only very general in nature. Other issues can often come into play before you finalize your subleasing strategy. Make sure you hire a seasoned real estate broker to shepherd you through the process. With the proper guidance, you can ensure that you minimize the time and expense of subleasing your space and maximize the sublease rent you will receive to help offset the remaining lease obligation to your landlord.
– Mr. Rubenstein is a Principal with The Miller Richmond Company