Recessionary pressures often result in reduced hiring and/or lay offs, leading to excess office space. The COVID - 19 Pandemic has forced many San Francisco tenants to look to the sublease market to mitigate the expense of excess office space. Over the past decade it has been relatively easy for occupiers to secure subtenants, often at a profit. Yet in times of macro-economic uncertainty, many tenants are surprised to learn their space is worth less (sometimes considerably less) than their cost basis. This is one of those times.
Successful space disposition in a decelerating market demands a thorough, disciplined approach. Such efforts should begin with a sober assessment as to how much of the remaining obligation can be recovered after considering expenses (legal fees, commissions, concessions, etc.). As with all tenant real estate, the quality of up-front due diligence correlates directly to the quality of the outcome. Among the essential steps involved in the initial underwriting are the following:
Audit Sublease and Assignment Lease Language
Prohibitions
LL recapture right(s)
Profit
Assess Intra-Building Demand
Existing vacancy
Growing tenants
Assess Competitive Market
Scale of comparable offerings
Pricing
Features, Quality
Assess Market Demand
Number of tenants actively seeking comparable space
Assess Space/Recommend Changes
Exiting
FF&E
Design
Staging
Identify Prospects
Assess Landlord Motivations
Lease termination in lieu of sublease
Establish Project Timeline
Marketing
Negotiation
Sublease commencement
Model Projected Recovery
Best Case
Base Case
Worst Case
Establish Budget
Legal fees
Broker fees
TI
Other
Define Offering
Available space
Timing
Asking rate
Other concessions offered
Create Marketing Campaign
Digital
Other
Outlets
Cadence
Reporting
Time is among the most critical factors influencing outcomes as occupiers look to dispose of excess space. This is true as every month of vacancy erodes recovery, limits remaining term and increases the challenge of securing a subtenant due to the flow of new supply coming to market. Occupiers looking to sublease space are right to demand transparency from their advisor, to require access to all the critical data informing and supporting the advisor’s recommendations. This is not a time for half-baked marketing schemes. TenantSee, powered by Cushman & Wakefield, brings together teams, resources and technology to create better outcomes. Among the technologies TenantSee deploys to enhance space disposition is Matterport, a technology that facilitates high quality virtual space touring as can be seen here in this currently available space offering.
In just 48 hours, our team can provide an initial diagnostic for any space disposition you may be considering. Our initial diagnostic is free and provided without obligation to contract for services. Contact us if you’d like to learn more. ~