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HOUSTON-Two recent, and sizeable, office sublease deals have been transacted in the area. Sigue Corp. took 35,790 square feet of space in the Reserve at Greens Crossing II in the Greenspoint submarket; while Eagle Rock Energy Partners LP signed for 53,232 square feet at Wedge Tower in the CBD.

According to reports, and to few local experts’ surprise, the amount of sublet space has been on the rise in recent months. CB Richard Ellis’ Q3 MarketView Houston put sublet vacancy at 4 million square feet out of a total inventory of 190.5 million square feet. Meanwhile, Grubb & Ellis Q3 market report showed a sublease vacancy of 3.9 million square feet, out of a total inventory of 167.8 million square feet.

But first vice president Rich Pancioli with CB Richard Ellis’ Houston office says the sublet amount shouldn’t be considered alarming. “Less than 3% of sublease space available in our market is still fairly healthy,” remarks Pancioli, who represented Sigue Corp. in the Reserve at Greens Crossing II transaction.

Grubb & Ellis’ Houston vice president Jim Arket, who represented lessor Dominion Exploration & Production Inc. in its deal with tenant Eagle Rock Energy, agrees. He tells GlobeSt.com that the percentage of sublet space in Houston, compared to the rest of the nation, is low. Furthermore, “this is less than it was during the last slump in 2001-2002,” he says. “At that time, we had something like 5.5 million square feet of sublet space on the market.”

Both brokers tell GlobeSt.com that sublet space has its advantages including compressed rates compared to direct lease asks and short-term deals. Arket explains that sublessors’ main goals are to reduce costs and get space filled. This is a boon for tenants, he goes on to say, because they can get great value. In the case of Eagle Rock Energy, “they wanted a presence in downtown Houston for image and recruiting purposes,” Arket remarks. “Recruiting in downtown has a lot of attraction, and a larger pool of potential employees with which to fill a business.”

In the Sigue deal, the tenant, a provider of electronic money transfer services, need a quick occupancy and preferred a discounted rate, which was obtained. Even better, “it came with furniture, fixtures and equipment,” Pancioli remarks. “This is why subleases are so attractive and we always advise our clients that if they can leave furniture, fixtures and equipment in place, tenants find that more attractive.”

Does this mean that tenants are going to flock to sublet space, eschewing the hire-priced direct-lease stuff. Not necessarily. Pancioli points out a major downside to sublet space, which is that the tenant is inheriting the sublessor’s tastes. Furthermore, there are few, if any expansion options or landlord service guarantees.

Additionally the prime sublease space on the market these days consists of smaller chunks. Arket points out that the Dominion Exploration-Eagle Rock Energy deal was a sublet anomaly in terms of size. “When you talk about filling subleases,” Arket explains. “you’re talking about filling space under 10,000 square feet. Large blocks of sublease face are not plentiful.”

But count on more of it to hit the market during the next year or two, Pancioli predicts. This, in turn, will continue a downward pressure on overall occupancy. “You’ll be seeing more and more sublease space hitting the market faster than it can be absorbed,” he remarks.

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