Sublease Shadow Lengthens Over Market

AUSTIN-Office sublease space reached 2.8 million sf from 2.68 million sf, according to the Buls-Hodge Report for the first two weeks of the month. About 152,000 sf of sublease space came on the market with about 21,000 sf leased, leaving a net increase of 129,000 sf.

Mike Buls, a broker, compiles the report in the middle and end of the month using figures supplied by brokers. It includes office space that is not immediately available.

A notable change is that the rate of increase in the northwest submarket slowed. It accounts for 59% — 1.67 million sf — of the sublease market, down from 61% in the previous two weeks.

By submarket, subleases taken were 29,000 sf in the northwest; 39,000 sf in the CBD; 38,000 sf in the southwest; 42,000 sf in the central.

Tenants have taken 506,000 sf of sublease space in the northwest submarket since February; 130,000 sf in the southwest submarket as well as 82,000 sf in the north and north central submarkets combined. The CBD has been off the pace, with just 53,000 sf filled in the past nine months.

Buls, who compiles the report, speculates that the slow pace of sublease activity in the CBD is attributable to lower demand, that tenants are less willing to negotiate on rents or they prefer direct leasing because of potential credit problems with sublessors. About 39% percent of the subleases have terms of less than 36 months and 18.4% are less than 24 months.

In the past two years or so, space was at such a premium that tenants eagerly made deals before another prospect entered the picture. Now companies looking for space have more choices, which leads to a longer decision-making time.