As the economy struggles to right itself, continuing weakness in the nation’s commercial real-estate sectors is manifesting itself in a glut of sublease office space.
From New York to San Francisco, office space is spilling back onto the market as companies close their doors. Manhattan’s famously robust real-estate sector is seeing office sublease space at nearly a five-year peak, with 10.3 million square feet available at the end of the first quarter. According to a report by real estate services firm Cushman and Wakefield.
Additionally, the company said that the presence of sublease space proved instrumental in pushing the Big Apple’s overall vacancy rate to 9.6 percent, a leap from 6.1 percent twelve months ago.
Manhattanites are far from the only ones feeling pain. In Chicago, sublease space jumped about 40 percent during the first quarter to clock in at 3.8 million feet, according to commercial firm CB Richard Ellis. The company has said that financial organizations were largely responsible for the giveback of space; those firms include JPMorgan Chase and Co. and Bank of America, as well as the now-departed Bear Stearns Co. and Washington Mutual Inc.
General vacancy amongst Chicago’s downtown office space hit a rate of 13.3 percent during the first quarter, up from 12.3 percent a year earlier. That’s the biggest leap in more than six years, according to CB Richard Ellis.
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San Francisco’s battered market currently has 814,681 square feet of Class A sublease space available. That represents 8.9 percent of the city’s total vacant office space. According to real estate firm Colliers International, healthcare provider Blue Shield of California, bankrupt law firm Heller Ehrman, and utility firm Pacific Gas and Electric Co. together shed 553,825 square feet during the first quarter.
The second quarter promises more San Francisco bloodshed as Charles Schwab Corp. relinquishes 375,000 square feet at 120 Kearny Street and Macy’s leaves behind 153,000 square feet at 22 Fourth Street. Both addresses are located in the city’s Financial District.
With office rents at their lowest since the dot-com implosion of 2001 and layoffs pending amongst many of the major Bay Area employers, San Francisco may see more rocky times before things begin to improve.
Two other major U.S. markets are seeing their share of trouble, but are not as hard-hit as some of their peers. In Denver, company downsizings led to a wave of sublease space in the city’s southern submarket, which has seen 255,107 square feet of negative absorption thus far this year. However, downtown Denver saw positive absorption of 33,153 square feet during that time.
Not counting sublease space, the office vacancy rate for metro Denver was 14.9 percent for the first quarter, up from 12.5 percent a year earlier. With sublease space included, the metro office vacancy rate is 16.5 percent for the first quarter. Experts say Denver’s luck resides in the fact that — unlike many other major markets around the country — it has not suffered from overbuilding.
In Boston, the office market saw a relatively mild increase of 1 percent with regard to office vacancy during the first quarter, with 1.1 million square feet of negative absorption. Those statistics are according to Richards Barry Joyce and Partners’ first quarter officeSTATus report.
However, sublease space has skyrocketed 122 percent amongst the Boston Financial District’s class A office availability over the last three quarters, largely due to shrinking law firms. Over the last two quarters, sublease space has spiked 88 percent, while in Cambridge, sublease space has jumped a troubling 98 percent.
While the nation’s economy is showing some signs of promise, it will likely take a while for these real estate markets to begin turning up more positive numbers.