2020: The Year of Subleases
Charting GrowthThrough the last several months, we’ve seen a tremendous increase in sublease space throughout the city. As documented in our graph, you can see the sizable increases in sublease square footage starting in the month of April, with over 1.15 million square feet in use. This increases through the late spring, with 1.379 million square feet in May, followed by 1.74 square feet in June. As the summer progresses, so do the incredible gains. By July, Boston is utilizing 1.987 million square feet, followed by a huge jump in August with 2.555 million square feet. In just the month of August, 27 new subleases measuring over 5,000 square feet came to Downtown Boston, totaling over 533,000 square feet.
Prime ExamplesAs a result of COVID-19, there have been several notable companies that have brought sublease offerings to the market. This includes Wayfair’s 167,639-square-foot space in Back Bay, Houghton Mifflin’s 84,000-square foot space in the Financial District, and MullenLowe’s 55,380-square foot space in the Seaport. 39 percent of subleases involve companies in the technology, advertising, media and information industries, totaling 985,966 square feet. This is followed by the financial, insurance and banking sector, with 18 percent of the subleases thanks to 469,692 square feet of space.
Looking ForwardWith such a profound influx of new sublease inventory, Cresa’s team of experts believe it will require four to six quarters in order to have a broad impact on direct asking rents. This dynamic was previously demonstrated in the dot-com burst of the early 2000’s, as well as the financial crisis that struck in 2008. During this period, we expect office occupiers to conduct a broad reevaluation of how and where their workforce will conduct business. As a result it’s likely that this will lead to major structural changes in how tenants utilize their office space, and in what size space they choose to operate.
The global pandemic has shaken the commercial real estate market. Many organizations still remain closed, vacancy rates are increasing, and Tenants are looking to shed excess space to decrease costs. As we head into the last month of 2020, many Tenants asking, “how should I prepare for the uncertainty of 2021”?
It will be interesting to see how industrial real estate will be impacted by the election in addition to increasing Opportunity Zones and changes to the 1031 Like-Kind Exchange.
2020 has seen many corporations shift their real estate strategy in the current economic conditions. Companies are taking advantage of low interest rates and aggressive pricing in the property markets to increase their liquidity and improve their credit ratings.