Role Reversal: Chicago Tenant Reps Switch From Searching for Space to Re-selling It

Office Brokers Swimming in Sublease Space Talk Strategy

Call it commercial real estate’s Craigslist moment.

Downtown office sublease inventories across the country are chock full of once-desirable spaces that their current tenants no longer want, and brokers are shopping their leases in hopes of finding a taker on a secondhand deal.

Rather than handing space directly back to landlords when they scaled down their office use to go remote or hybrid during the pandemic — a move that usually comes with a hefty early exit fee — many tenants gave subleasing a try. The process typically involves backfilling excess with a sublease to another firm, called a subtenant, that comes in and usually pays cheaper rent to the contracting tenant, called the sublandlord.

The sublandlord typically offers the subtenant a more flexible leasing arrangement than in a standard deal. And it allows the sublandlord to reserve the option to move back into its space in the future and resume paying the full rent to the building owner itself.

Few markets, if any, have as much of this secondary space on the market as downtown Chicago, where tenants are looking to shed a collective 8 million square feet, a record high for the city.

There’s different levers to pull when negotiating a deal in the sublease market, and the brokers are performing a bit of role reversal. Since tenants drive the sublease market, it’s their brokers who are marketing spaces on behalf of the companies cutting back on offices. That means it’s the tenants reps who are seeking out other potential tenants while trying to refill the space — a job that brokers who represent landlords normally do in a tighter market.

Instead of haggling with brokers whose clients are landlords, these days getting a lease done might mean working with a fellow tenant rep who is normally a competitor.

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Brokers often remind tenants that the amount of time a space spends on the secondary market without being leased again costs money as their rent for the building owner comes due each month. That can help ease the pain of cutting rental rates on a sublease.

Some spaces in older Loop buildings are dipping below $20 per square foot in gross rental costs on subleases, less than half of what they might be rented for in a deal directly with a landlord. They’re finding out there’s not a lot of takers, even with the discount, said Allen Rogoway with Cresa, a brokerage that, like Savills, represents commercial tenants exclusively.

“Our world has changed in a way that we are constantly thinking about which tenants are repositioning to what size of space, and that game of Tetris of putting two parties together,” Rogoway said. “Whereas it was tenant-landlord action, now it’s a lot of sort of occupier-occupier. If you can find the two corporate entities that you know match up, that’s where you need to play ball.”

Even tenants of brand new skyscrapers and the trendy Old Post Office are backing away from their spaces, and asking their brokers to help reduce real estate costs through a sublease deal.