Office Sublease Space=Discounted Opportunities

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SAN FRANCISCO-Office sublease space in San Francisco offers discounted leasing opportunities to tenants with flexibility and shorter duration space needs. So says Colin Yasukochi, CBRE director of research and analysis. He tells GlobeSt.com that “It's become a more important option given the large rental rate increase and large available supply decrease that favors landlords.”

The average sublease space currently on the market is priced 24% less than direct space, with an annual asking rent of $39 versus $51 per square foot, fully serviced, he says. “The rental rate also declines along with the number of years the sublease is available for. Even though some tenants may require a longer lease, additional term is often available direct from the landlord, making a blended rate potentially more cost effective.”

The analysis of San Francisco office sublease space did yield some surprising results, he says. “Direct rates from the market low point in early 2010 compared to the first quarter of 2013 rose by an astounding 65%. Over that same time period, sublease rates rose 77%, reflecting tight space conditions and tenants seeking options with greater flexibility and shorter terms.”

It's well documented that high-tech firms are driving market performance in San Francisco, but, according to Yasukochi, they are also the largest sublessors of space.

“Of the 1.1 million square feet available for sublease, 34% is from high-tech firms,” he says. Outgrowing their current space is the primary reason for their subleasing activity.”

New development is beginning to solve the space shortage problem, according to Yasukochi, but it will be one to two years into the future before it makes a meaningful impact on market conditions. “Keep an eye on sublease space trends, it's historically been an early indicator of market health.”

Check out the graph from CBRE below for more.

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