DENVER-It looks worse than it is when it comes to the region’s sublease space, says a Cushman & Wakefield of Colorado Inc. senior director and top producer.

Right now, there is about 3.4 million sf of sublease space on the market, says Nick Pavlakovich. To a large part, that is driving the overall office vacancy rate, which he estimates at 18%, a bit higher than other firms put it. He pegs the CBD’s office vacancy rate at 13%; southeast suburban at 22% to 23%; and northwest corridor, 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 2002, he predicts. Meanwhile, he says only 350,000 sf to 400,000 sf of the subleased space has been leased.

Still, a closer examination reveals that the sublease space is not as dire as it has been in other downturns, Pavlakovich 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 building owners willing to bring tenant improvement dollars to retrofit the space, Pavlakovich says. 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,” he tells

What that means, in may cases, is that the sublease space will “basically expire. It has kind of a short, useful life.” At that time, it will revert to direct space from the building owners. Hopefully, the market will be stronger at that time.

Still, owners would prefer not to have to deal with sublease space. “The psychological impact of having 3.4 million sf of sublease space is huge,” he says. “In many cases, it is heavily discounted and is competing with direct lease space.

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