Sub-lease opportunities grow, but demand slim
Even as businesses in Northern Colorado consolidate their operating space, experts say the market for sub-lease space has remained fairly steady in the last couple years
Steve Stansfield, managing broker for Realtec Commercial Real Estate Services, said there is sub-lease office space available in Fort Collins. Still, it’s not a substantial part of the market.
“It’s less than 10 percent of our total inventory,” he said. “It doesn’t have a huge effect on diminishing rents.”
But tenants understand that the market is very soft at present, so they have become more aggressive in their demands, he said. “The demand is quite lackluster. It’s providing for high allowance on rent abatement,” he said.
“In the past, about five years ago, we had virtually no sub-lease space. What we’ve seen is companies that have consolidated and maybe relocated now need to divest themselves of fairly large blocks of space. That’s the typical circumstance that generates sub-lease inventory,” Stansfield said.
This pattern has been occurring more in the last two years than previously, he said.
Most of the sub-lease space that is available is Class B office space, although it is mixed, he said.
Fort Collins’ entire office space market amounts to about 5 million square feet in privately owned buildings. The vacancy rate now is about 11 to 12 percent. “That’s relatively unchanged from the last couple years,” he said.
“I don’t see any indication that there’s going to be any big changes right now. We’re not seeing any new companies with inquiries,” he said.
Andy Miscio, of Miscio Real Estate Services in Fort Collins, agreed that the sub-lease market here is a very small portion of the entire market.
“The new tenant takes over the existing lease. There may be three to five years left. If it’s a longer time period, that makes it more viable to sub-lease. If it’s a year or less, then the new tenant will want a whole new lease,” he said.
“Usually sub-leases are viable only if they are long-term with options, like two five-year options plus what’s remaining in the primary term. Those have some merit,” he said.
“Sub-leasing is very, very tough to do. Usually you have a whole new lease to negotiate. The landlord may or may not approve of the new tenant,” Miscio said.
Sometimes the original tenant may be required to remain liable on the lease for the next tenant, he said. “Sometimes the tenant who’s moving out has no choice but to guarantee the lease,” he said.
“I put together a little sub-lease recently in which the landlord was part of the negotiating process. The existing and new tenants talked, agreed, and then the landlord came into the picture and met the new tenant. There was one year left on the lease with a five-year option,” Miscio said.
In that case, the new tenant could not pay the full rent for the coming year, but plans to pay it in full once the option takes effect. The former tenant agreed to subsidize the new tenant to get someone to take over the lease, he said.
“There’s no standard sub-lease. It’s very customized to the new tenant,” he said.
“Generally speaking, the bigger the market, the more sub-leases there are. In Fort Collins, we have such a small market that it gets tough to do. The larger the market, the more viable is a sub-lease,” he said. x09
“Most people stretch their leases so there’s not much left on the term. Two years is about the most they have left,” he said.
Dan Stroh, of Stroh Co. Realty in Loveland, said the sub-lease market in Northern Colorado is not a big factor and has not grown recently.
“The buildings that I own have not had one sub-lease at all. All my tenants have been viable. But most of the buildings are very seasoned and the tenants have been in place for some while,” he said.
In fact, most of these tenants have 15-year triple-net leases, he said.
Most of the space he controls is office space but the properties also include a 67,000-square-foot manufacturing facility and a 23,400-square-foot medical space occupied by Greeley Medical Clinic in Greeley, he said.
Of the office buildings under his management, there was only one vacancy in the last two years, and that was because the tenant grew ill from West Nile disease and could not continue his business. “I let him out of the lease and leased it again in 30 days,” Stroh said.
Even as businesses in Northern Colorado consolidate their operating space, experts say the market for sub-lease space has remained fairly steady in the last couple years
Steve Stansfield, managing broker for Realtec Commercial Real Estate Services, said there is sub-lease office space available in Fort Collins. Still, it’s not a substantial part of the market.
“It’s less than 10 percent of our total inventory,” he said. “It doesn’t have a huge effect on diminishing rents.”
But tenants understand that the market is very soft at present, so they have become more aggressive in their demands, he said. “The demand…
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