Is More Sublease Supply the First Sign of a Downturn?

The chart show the available sublease supply and the asking rents for sublease space.

LOS ANGELES—The supply of sublease space is up 10.7% from the same time last year, but asking rents haven’t fallen, according to a report from NAI Capital that GlobeSt.com has obtained exclusively. The report shows that sublease available space has increased slowly over the past year, while rents have also continued to rise, and as a result, there is a shrinking delta between direct lease rates and sublease rates. This trend could be signaling a potential downturn in the future, according to Forrest Blake and J.C. Casillas of NAI Capital, who produced the report.

“The activity levels that we are seeing—and I am just talking about phone calls and showings—are slowing down,” Blake, a VP at NAI Capital, tells GlobeSt.com. “In my eyes, one of the first indications of a downturn is that business owners are saying that they don’t want to warehouse extra space because they are slowing down or revenue is down, and they want to get rid of excess space. That is a theory that we validated here, and is at least in the very early stages. Rental rates are going up, still, which is interesting, but the vacancy is increasing by 10.7% over the same quarter last year. There is a change that is going to happen. We can’t validate it with all of the numbers yet, but it is coming.”