SANTA ANA, CA (Sept. 3, 2008) – Grubb & Ellis Company (NYSE: GBE), a leading real estate services and investment firm, found in a special report titled, The National Office Sublease Market: Is It Really Different This Time?, released today that the current softening in the sublease market is significantly milder than what occurred during the same timeframe of the last market contraction.
(Miami Biscayne Bay Bridge, top right photo)
During the prior contraction, developers reacted to dissolving demand by tabling new p
rojects. In contrast, during the current softening in the sublease market developers have continued to kick off new projects as the construction pipeline passed the 100 million-square-foot mark during the second quarter of 2008 for the first time since 2001.
· The South Florida, Atlanta, Austin, and Central and Northern New Jersey markets all show evidence of emulating the national trend of an increase in sublease space in the suburban Class A properties. (Miami Biscayne Bridge photo, top right)
· While Atlanta (skyline, top left) has mirrored the national market with an increase in sublease supply of suburban Class A properties, rapid growth in medical and life sciences industries has served to keep the market in positive absorption territory as of mid-year.
· Chicago (top right, downtown retail district) countered the national trend with the majority of the increase in sublease space focused in the city’s central business district. Despite the recent jump to 6.4 million square feet of available space, the market is far from the 12.6 million square feet available duri
ng the prior market contraction.
· Orange County witnessed a 52 percent increase in sublease inventory during the past year, driven by consolidations and reductions in the mortgage banking, software, training and legal industries.
While space available for sublease increased during the second half of 2007 and the first half of 2008, the report concluded that there are key differences between current conditions and those of the previous market con
traction in 2001 and 2002.
traction in 2001 and 2002. “The impact of sublease space on the market boils down to how competitive the space is compared to existing alternatives,” said Robert Bach, Grubb & Ellis’ Chief Economist.
“Tenants looking to market sublease space are in a more favorable pricing environment compared to the previous cycle as overall asking market rental rates have yet to decrease.”
According to the report, broad market fundamentals have remained positive despite the concurrent increase in sublease availability.
The market experienced 24.5 million square feet of positive absorption from the third quarter of 2007 through June 30, 2008, compared with 38.9 million square feet of negative absorption in the earlier benchmark period.
Overall Class A asking rents have also continued to increase 7.0 percent, compared to a 6.3 percent decline in the previous cycle, according to the report.
During the prior contraction, developers reacted to dissolving demand by tabling new p
rojects. In contrast, during the current softening in the sublease market developers have continued to kick off new projects as the construction pipeline passed the 100 million-square-foot mark during the second quarter of 2008 for the first time since 2001. An analysis of 363 subleases being actively marketed by Grubb & Ellis in August 2008 suggests that while smaller blocks of space, less than 10,000 square feet of rentable area, dominate in terms of the number of offerings at 67 percent of overall market share, these spaces only account for 24 percent of all sublease availability.
Although only 3 percent of overall market share, large blocks of space, 40,000 square feet and larger, account for 21 percent of the total sublease square footage available.
The report sheds ligh
t on which industries have been able to extract value from the sublease market; the professional, scientific and technical services sectors, the transportation and warehousing sector, and the finance and insurance sectors account for half of the sublease absorption over the past four quarters.
t on which industries have been able to extract value from the sublease market; the professional, scientific and technical services sectors, the transportation and warehousing sector, and the finance and insurance sectors account for half of the sublease absorption over the past four quarters. “While additional sublease space can be expected to become available over the coming quarters, the majority of it in suburban Class A buildings, current conditions better position tenants to mitigate their losses than in the previous softening cycle,” said Bach.
The report also includes a summary of trends occurring in key markets across the nation:
· The South Florida, Atlanta, Austin, and Central and Northern New Jersey markets all show evidence of emulating the national trend of an increase in sublease space in the suburban Class A properties. (Miami Biscayne Bridge photo, top right)
· While Atlanta (skyline, top left) has mirrored the national market with an increase in sublease supply of suburban Class A properties, rapid growth in medical and life sciences industries has served to keep the market in positive absorption territory as of mid-year.
· Chicago (top right, downtown retail district) countered the national trend with the majority of the increase in sublease space focused in the city’s central business district. Despite the recent jump to 6.4 million square feet of available space, the market is far from the 12.6 million square feet available duri
ng the prior market contraction. · In Los Angeles, (middle left photo, downtown office towers) the Tri-Cities and LA North submarkets were hard hit due to the area being home to residential real estate and related firms.
· Orange County witnessed a 52 percent increase in sublease inventory during the past year, driven by consolidations and reductions in the mortgage banking, software, training and legal industries.
· Large blocks of Class A space account for more than 70 percent of the total sublease availability in Richmond, Va. (composite photo, bottom right) Tenants are aggressively looking to monetize the excess capacity of space in the area.
A complete copy of the report can be requested via email, send requests to corporatecommunications@grubb-ellis.com.
Janice McDill, 312.698.6707
janice.mcdill@grubb-ellis.com
janice.mcdill@grubb-ellis.com
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