This article was originally published by the Dallas Business Journal.
The amount of sublease space now available in the North Texas office market has topped 9 million square feet, according to a new report by Avison Young.
Ever since shelter-in-place began in mid-March, sublease space has been on the rise. Total sublease volume has increased by 49 percent since January and is up from 5.7 million square feet a year ago. Of the 9.05 million square feet of available sublease space in the market, nearly 4.4 million square feet is vacant.
Non-vacant subleases include space that has been listed but not vacated and space that has been leased by a new tenant. The report's parameters include office buildings over 20,000 square feet, owner occupied included, and subleases of at least 2,000 square feet.
Dallas-Fort Worth now has the third most available sublease space of any office market in the country, coming in behind New York City and San Francisco. There is currently 165 million square feet of available sublease space in the U.S. office market, according to Avison Young, an increase of 50 million square feet year-over-year.
The following submarkets are where the most sublease space can be found in North Texas, according to Avison Young:
- Las Colinas: 1.48 million square feet
- Upper Tollway/West Plano: 1.22 million square feet
- Dallas CBD: 1.2 million square feet
Some submarkets, like Las Colinas and Richardson/Plano, have seen available sublease space double over the last 12 months. Subleases have increased by 154 percent in Las Colinas and 121 percent in Richardson/Plano.
According to reports by Cushman & Wakefield and Stream Realty Partners, these are some of the largest available subleases in North Texas along with their sublessor.
- Liberty Mutual - 7900 Windrose Ave., Plano: 227,000 square feet
- Fossil - 901 S. Central Expressway, Richardson: 215,191 square feet
- Pier 1 Imports - 100 Pier 1 Place, Fort Worth: 173,575 square feet
- Sabre - 1500 Solana Blvd., Westlake: 124,734 square fee
- Uber - 2550 Pacific Ave, Dallas: 116,000 square feet
- Denbury Inc. - 5360 Legacy Drive: 106,520 square feet
Most of the sublease space available in North Texas, almost 40 percent according to Cushman & Wakefield, is between 20,000 and 49,999 square feet. Space over 50,000 square feet makes up the second highest percentage at 26.6 percent. Subleases make up between 15 and 20 percent of all space available for lease in North Texas today.
"Many groups have various reasons for marketing space for sublease. The most common trend we are seeing at the moment are those groups who took excess space initially with plans for future growth, whose growth has not materialized as quickly as originally anticipated. Most of these companies consist of large corporate users in more suburban submarkets. Instead of leasing and holding the space for planned future growth, getting recovery on underutilized space has become a trend as companies look to cut back on excess spending," said Travis Boothe, senior director within Cushman & Wakefield’s Tenant Representation Group.
Boothe says that high-end furnished subleases in amenity-rich areas are getting a lot of attention and are being leased quickest. He's also noticed that a large amount of companies that are new to North Texas are targeting subleases as a way to quickly enter the market.
Boothe and his team at Cushman & Wakefield were recently part of a three-company sublease deal that saw Denbury Inc. (NYSE: DEN) move its headquarters within Plano to Legacy Union One. Denbury took 104,841 square feet, portions of which came from Prosperity Bank and Aimbridge Hospitality. Despite all of its moving parts, the deal came together in just three weeks.
"Once a solution was identified and proposed, all parties were committed to making it happen quickly. Between decision makers at the respective companies, brokers, attorneys, etc., there were over thirty individuals who made it a priority to deliver results for each of the tenants quickly. We had calls and emails commencing as early as 7 a.m. every morning and lasting until sometimes 11 p.m. or later some nights. With all of the moving parts, each group was aligned to make it happen quickly," said Boothe. "With over a decade of experience, this was truly one of the most creative, complex, and quick transactions I have had the honor of being a part of."
Denbury's headquarters move comes after the company emerged from Chapter 11 in mid-September, having eliminated $2.1 billion of bond debt. As the pandemic has caused more companies to seek Chapter 11, experts say subleases can provide these firms with a quick and affordable office solution upon restructuring.
"For companies coming out of Chapter 11, sublease space at a below-market rental rate can provide an ideal solution that is more affordable than traditional office or coworking space," said Maschera Usrey, senior vice president of Cresa in Dallas. "At the completion of the sublease term, the subtenant may have an opportunity to structure a direct deal with the landlord at below the asking rental rate in order for the landlord to avoid vacancy and a contribution of tenant improvement dollars. For companies that have liquidated their assets, furnished, move-in ready space is another money-saving measure. In most cases, the landlord will keep the original credit tenant on the hook making the sublease less risky for ownership while providing the sublessor with a viable option to backfill their space."
In August, Micah Rabalais, research manager at Avison Young, told the Business Journal that he was expecting to see around 8 million square feet of available sublease space hit the market by the end of the third quarter. Even though numbers finished slightly above that mark, he's predicting slower sublease growth for the end to the year.
"Things have moved at the speed that we thought they would," said Rabalais. "We're predicting we'll be at about 10 million square feet of available sublease inventory by the end of the year, keeping us in the top three or four markets in the country."