Is Subleasing Right For You?

Chicago, IL | May 29, 2018

Is Subleasing Right for You - Elise O'Connor

Why do companies choose to sublease?

Companies choose to sublease their space for a variety of reasons, but the common denominator always comes down to what makes sense financially.  Before a company decides to put their space on the sublease market, they should meet with a commercial real estate professional who can perform a preliminary financial analysis to determine their best options. This analysis typically compares your current obligation to what the expected return is on your space, on both a present value and total value basis, as well as GAAP accounting versus simple cash flow. If there is a relocation involved, the analysis should also reflect these costs to show the total costs and write downs associated with a sublease and relocation. 

Why work with a commercial real estate professional?

KNOW ALL YOUR OPTIONSIs Subleasing Right for You - Elise O'Connor

First and foremost, a real estate professional can provide lesser known alternatives to subleasing your space that may save you money in the long run.  For instance, there are often multiple clauses in a lease that provide “an out,” or a way for you to terminate your lease early without the hassle and cost of subleasing. Additionally, a real estate professional will be able to identify any potential opportunities pertaining to your building or another tenant that may incentivize the landlord to find an alternative option to subleasing.

UNDERSTAND THE MARKET 

If the best solution turns out to be subleasing your space, it’s crucial to understand the commercial real estate market in your city. What is market rate? What are market incentives? What other subleases would my space be competing with? How long have these spaces been on the market? A real estate professional will know the answers to these important questions and how they apply to your unique situation.

TIME IS MONEY

One of the most important reasons to work with a real estate professional when subleasing your office is that they can help you market your space as effectively as possible. Every month a sublease space sits on the market is money out of your pocket. The number one mistake we see when companies sublease is overpricing the space – especially for short term subleases of less than three years. It’s easy for companies to overvalue their space because they don’t necessarily realize that how much term is left on a sublease negatively affects the asking price. For example, a space with three years left might be worth $36/SF, but six months later, that same space is worth only $30/SF, due to the short amount of time left on the sublease.  Hence, placing too high a price on sublease space at the frontend can have a disproportionate effect on the backend, even when the overall market hasn’t changed. A real estate professional can advise you on realistic asking rents, ensuring your space doesn’t stay on the market for too long because it’s overpriced.

Snapshot of Chicago’s Downtown Sublease Market

There’s currently 2.7 million square feet of sublease space available in Chicago’s downtown office market, about 40% of which is located in Central Loop.

Most of these spaces are less than 20,000 square feet, but nine of them are larger than 50,000 square feet - perfect for subtenants looking for a lot of space. The largest block of sublease space currently on the market is 297,000 square feet of JP Morgan Chases’ office at 21 S. Clark.

MBRE 1Q 2018 Sublease Space by Submarket - Is Subleasing Right for You - Elise O'Connor

About Elise

Is Subleasing Right for You - Elise O'ConnorElise started working at age 14 for the local grocery store. While in high school, she worked her way from bagger, to cashier, to butcher, to retail sales associate.  That’s right, a butcher.

She carried her retail skills into college and had a five year run at Nordstrom. Post college, Elise tested the waters in recruiting and healthcare sales, but found her place in commercial real estate with our tenant rep team. She attributes more than just the industry itself to her choice to be a commercial real estate broker and was inspired by the people at MBRE to stay on this career path.

“I was fortunate enough to find an industry I’m passionate about, that challenges me, and allows me to channel my creativity. I'm really delighted to work at a great company with a close-knit team of brokers who really know their craft, love what they do, and work well together.”

Elise has lived in Chicago for eight years and is a self-described foodie who loves to explore the city and all it has to offer. 

“I’m your typical Chicagoan and love exploring Chicago’s diverse neighborhoods and trying new restaurants. In the summer, you can typically find me on a patio with my pup Roscoe, or exploring new parts of the city. It’s also worth noting I’m a sucker for any Hogsalt restaurant.”

Learn more about MBRE’s Elise O’Connor.