There are a number of reasons you might put space on the market for sublease. No matter your motivation, there’s nothing more frustrating than seeing it sit on the market with little to no activity month after month, costing your company thousands of dollars each additional month.
At AQUILA, we’ve helped a number of clients successfully sublease space so we know how to get your space moving.
Here are five common reasons we see subleases sit on the market for extended periods of time.
1. Your Asking Rate is Too High
One of the most common reasons a sublease space sits on the market is because the asking rate is set too high.
It’s important to set a rate that’s competitive with the rest of the building and other comparative buildings in the market. And remember, subtenants don’t receive the same concessions and rights as tenants who sign a direct lease, like renewal rights or building signage, so subtenants will often expect to pay less for their sublease than they would for a direct lease.
We often see tenants who make the mistake of holding out for a certain rate, rather than securing a subtenant today at a slightly lower rate. The idea being they’d prefer to hold out for a subtenant who will cover more or all of their rent obligation.
However, it often makes more sense to sublease now at a slightly lower rate than to wait a few months to get a higher rate.
Remember that each month your sublease sits on the market is a month you’re not going to recover in rent. A lower rate may get your agreed-upon economics faster and lower your all-in obligation on the space.
For example, imagine you have 36 months remaining on a 5,000-square-foot lease at $50/sf/yr. If you agree to terms with a subtenant today at a $42/sf/yr rental rate for the full 36-month term, you’ll recover 85% of your remaining rent obligation.
If you hold out for a tenant willing to pay the full $50/sf/yr rate, you risk losing more money in downtime than you gain in monthly income. If it takes you six months to secure a tenant for the full $50/sf/yr rate (a not uncommon result): the six months of lost income result in just an 83% recovery of your total rental obligation.
This is especially important to consider when there’s a significant amount of space available in the building or when there’s an excess of supply in the market as a whole compared to demand.
AQUILA Pro Tip
One in the Hand Is Worth Two in the Bush
In a market with more supply than demand, it’s important to do what you can to secure the tenant that shows interest first. You don’t know when the next prospective tenant will come along, especially one who’s willing to commit to better terms. Too many times we’ve seen tenants try this approach and end up sitting on a vacant sublease for months. By locking in an interested tenant as quickly as possible, you will see immediate relief on your rental obligation and in most cases actually mitigate more of the overall cost.
To find out what average asking rates are in your submarket, read our article How Much Does It Cost to Lease Office Space in Austin, Texas?
2. You Need More Compelling Visuals of Your Space
When it comes to marketing real estate, it’s important to put your best foot forward.
Professional photography is one of the most important things to have for a sublease. These photos will be on your listing online, in the marketing flyer, and featured in the email campaigns for your sublease. They will be the first thing brokers and potential tenants see when considering your space, so it is imperative these photographs are compelling and grab the viewer’s attention.
Another way to capture and keep attention is through video. Using video to showcase your sublease space can take your listing to a new level and allow prospects to experience the space without ever stepping foot inside the building. Suite tour videos can be a great way to show off the space virtually and make sure you hit all the high points.
3. Your Broker Isn’t Giving Your Project Enough Attention
Your sublease should be a priority to your broker.
You can’t just list a space and expect it to be subleased. Your broker should be actively marketing the opportunity and providing you with regular updates about their initiatives and progress.
There are several ways to tell if your project is getting the attention it deserves or not.
Make sure your broker has provided you with the essential commercial real estate marketing materials, including a marketing flyer, an email campaign, a website listing, and Costar listing, etc.
Additionally, are they thinking creatively about marketing your property? And do they have the horsepower to execute these ideas?
If the standard marketing materials aren’t capturing enough attention, you may want to talk to your broker about ideas like advertising, events, and videos.
Broker and Tenant Outreach
In addition to the marketing campaign, your broker should be reaching out directly to their network to make sure the industry is aware of the opportunity. They should be sending direct emails to local tenant representation brokers with personal notes. Brokers are flooded with automated property emails every day, so a personal note can help the email, and your space, stand out.
Your broker should also reach out to every tenant in your building or office park. These tenants should be the first ones contacted and should be aware of your space immediately. They may be interested in your space for expansion.
They should also approach your landlord. Brokers and tenants frequently call landlords for direct space. Reaching out to your landlord will keep your sublease space top of mind, and they may already know of someone needing space. Some landlords may even take the space back from you and relieve you of your obligation if they know of someone who wants the space.
Not only should your broker be doing all of these things, but you should also receive regular reports of their marketing efforts and any leasing activity, including tours, requests for proposal, etc.
4. Your Landlord Is Blocking Transactions
You need to make sure you understand the sublease language in your lease. Some leases state the landlord can deny prospective sublease tenants for a number of reasons. First, you need to find out if you have the right to market to all tenants. The landlord may have the power to deny consent to a sublease with a tenant who toured a space at the property or called about spaces at the property directly within a certain number of days. A landlord’s rights can vary so it is important to fully understand your lease.
Ideally, your lease will include language allowing you to market your space to all tenants. However, if your landlord does have the right to restrict certain tenants, a savvy tenant representation broker should be able to help you navigate this.
For example, if your landlord can prohibit you from subleasing to a tenant who is also negotiating with the building directly, your broker should be able to educate the brokerage community and the tenant of the importance of inquiring about the sublease space first.
5. You Don’t Trust Your Broker
Ultimately, hiring a broker you can trust is the best way to avoid problems. If you don’t have confidence in your broker, it can be frustrating and lead to some of the issues previously mentioned.
If you have a good relationship with your broker you can discuss some of these other solutions with them openly. You can then both make quicker decisions and think creatively and strategically together.
At AQUILA, our tenant representation team is always open to trying new things and presenting creative solutions.
This list covers the common issues with stagnant subleases, but this doesn’t cover everything. Speaking with a reputable tenant representation broker is the best way to get solutions curated for your sublease space’s specific needs.
To talk to one of AQUILA’s tenant rep brokers about your sublease, schedule a consultation today.