Tech Industry Offers Attractive Sublease Options to Prospective Office Tenants

The tech industry accounted for 23% or 43 million sq. ft. of total U.S. office sublease availability in Q1 2023. The 189 million sq. ft. of current U.S. sublease availability has nearly doubled since March 2020. Substantial pre-pandemic leasing activity by tech tenants and the prevalence of hybrid work arrangements resulted in greater need for them to shrink their office space portfolios. Between 2018 and 2019, tech accounted for the largest share of U.S. office leasing activity at 21% or about 65 million sq. ft.

Figure 1: U.S. Office Sublease Availability

Source: CBRE Econometric Advisors, Q1 2023.

Most of the sublease space offered for lease by tech companies is concentrated in the top tech employment markets. In San Francisco and Silicon Valley, tech accounts for 75% and 65% of total available sublease space, respectively. Austin, Seattle and Boston have the next highest tech shares, while Charlotte, St. Louis and Nashville have the lowest shares. Many of the sublease blocks offered by tech companies have more easily adaptable fit-outs for hybrid work than those with primarily private-office configurations. This offers opportunity for office tenants in the market to find lower cost and higher-quality options.

Figure 2: Technology Industry Concentration of Sublease Availability, Feb-2023

Source: CBRE Research, March 2023. Includes U.S. tech-oriented markets in CBRE Tech-30 report.

Tech concentration was not always connected with the rise in sublease space. Many smaller markets with low shares of tech subleases, including Charlotte, Minneapolis and Phoenix, had the highest percentage rise in sublease space between March 2020 and February 2023. Manhattan, San Francisco and Chicago added the most sublease space square footage since March 2020. Of these, Manhattan had the lowest growth rate (105%) and lowest tech sublease concentration (13%). Pittsburgh, with a tech sublease concentration of 26%, added the least sublease space by square footage and had the lowest growth rate.

Figure 3: Available Sublease Space Growth vs. Tech Concentration by Market*

Source: CBRE Research, March 2023. Includes U.S. tech-oriented markets in CBRE Tech-30 report.
*Growth rate of sublease sq. ft. between March 2020 and February 2023. Tech concentration is share of total sublease sq. ft. as of February 2023.

Sublease space has impacted markets across the U.S. to varying degrees by offering competitive alternatives to direct offerings by landlords. Unlike past periods of rising sublease space when rent defaults were common, most tenants today are paying rent to their landlords. Tenants with sublease space on the market will become increasingly motivated to offer prospective replacement tenants more attractive terms as their leases approach expiration. The original leases on about half or 90 million sq. ft. of marketed sublease space expire by 2026. This pending loss of income will greatly motivate landlords to help tenants that are offering sublease space find replacement tenants prior to expiration. Subleased space that is occupied provides landlords with retention opportunities on a direct basis.