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Large Blocks of Sublease Space Aren't Going Anywhere Anytime Soon

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Mike Kay spoke with the DBJ about the factors he believes are behind current sublease trends

Sublease space is at a record high in North Texas, and Mike Kay doesn’t see it dipping down any time soon. 

“I think the biggest challenge with that type of space is that the big users, the large corporate users, are just slow in the decision making process in terms of uptake,” Kay said. 

Kay is a vice chairman at Colliers International, and he said he doesn’t think the amount of sublease space on the market is going to drop anytime soon. All bets are off until large corporations start making leasing decisions, he said. 

According to Transwestern’s Dallas + Fort Worth Industrial Market Q3 report, sublease availability would’ve declined by 100,000 square feet in the third quarter but for two large listings. In Dallas, there were about 8.9 million square feet of space available for sublease in Q3, while in Fort Worth there were about 1 million square feet of space available. 

This rate will stay flat or increase until large corporations start making leasing decisions, Kay said. He anticipates that’ll be sometime in Q2 or Q3 next year. In the meantime, many companies are seeking flexible workspaces. 

Kay spoke with the Dallas Business Journal about the factors he believes are behind current sublease trends. 

I’ve read reports that two-thirds of available sublease space is in Class A property. What would that indicate about the market? 

I think it’s indicative of large (corporations) not really understanding how they're going to move forward in the post-COVID world. 

What trends are you seeing regarding sublease space? 

Smaller spaces are going to be taken up, because, again, those small users have to be back in the office and they have to run their business. But for the most part, what we’re seeing is large corporate users are still hitting the pause button. And until they start making some decisions, I don’t see how these big blocks of space are going to be taken down.

 

We’ve got a lot of large corporations that are looking at DFW as a potential relocation option, and we’ve seen a fair share of companies come into Dallas. But there are a lot of tire kickers, and I don’t know that we necessarily have anybody that’s ready to make a decision at this point in time (for) a large corporate user space. 

Let me just add to that, I hope I’m wrong.

You mentioned that large corporations are seeking flexible workspaces. What did you mean by that? 

Say they’ve got an office downtown but they’ve got a high concentration of personnel in the suburbs. We’ve seen a lot of (and) we’ll continue to see some suburban flight from the core CBD markets to the suburbs…

If a corporation has remote workers working from home in some of the suburban markets, they may establish a satellite office... or spaces where they’ve got the ability to bring people in and try to help hone a company culture and add to creativity and productivity, just the synergies of people being together. 

I think that’s something that’s sorely missing today’s office market, the ability to develop culture. 

What do these subleasing trends tell us about the market going forward? 

Historically speaking, I’d say that sublease space on the market was a leading indicator, in terms of absorption and where clients' heads were at… But with COVID, everything is uncertain at this point in time. I’d love to say that because we’ve got so much sublease space on the market, we’ve got an occupancy or use trend that’s trending downward. But I don’t think that’s necessarily the case. 

I think until companies can realign their functional and operational business lines and understand how they’re going to deal with COVID, it’s still a crapshoot as to whether or not we’re going to continue to see the sublease trend continue or whether we’re going to see absorption kick back up, which we’re all hoping for. 

 

Read the article at Dallas Business Journal


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Mike Kay

Vice Chairman

Dallas

Mike Kay serves as Vice Chairman for a highly respected multi-market occupier services team based in Dallas, Texas. The team is nationally recognized by Colliers for delivering customized real estate solutions exclusively to corporate occupiers, through a diverse team of dedicated professionals, the powerful Colliers platform, and a proven track record.          

Mr. Kay specializes in multi-market real estate transaction management, local market transactions spanning the DFW Metroplex, as well as oversight and execution of significant, complex lease, purchase, and build-to-suit assignments for our clients.

Prior to joining Colliers, Mike served as Executive Vice President and Partner for the DFW-based Advisory and Transaction Services team of CBRE, Inc., where he was employed for 22 years.

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