Office space for rent: Sublease offers rise amid pandemic uncertainty

By Andy Peters, The Atlanta Journal-Constitution

Many Atlanta companies still uncertain about return to cubicles

When are metro office workers returning to their offices?

Some companies still aren’t sure, judging by one indicator.

The amount of office space available for sublease in metro Atlanta is the highest it’s been since the Great Recession, and nearly double what it was before the pandemic, according to industry estimates.

Among those still cautiously weighing their next step is OS National. The company never closed its mortgage-title office near Gwinnett Place Mall because the public visits for real estate closings and some employees must be there in person.

Still, many employees work from home due to COVID-19 concerns, said director John Provost. That’s left OS National with plenty of empty desks.

Its situation is complicated by the fact that it recently launched a hiring spree to keep pace with booming demand for homes. OS National one day might want everyone in its larger workforce to come to the office.

Provost said subleasing is the solution, allowing the company to kick the can down the road on a decision about long-term needs. It’s listed a portion of its Duluth office as available to sublet but hasn’t found a taker yet.

“It’s a balancing act to try to predict what we think things will look like in the future,” Provost said.

Many other Atlanta businesses are doing the same thing. And it comes as metro Atlanta’s office vacancy rate rose to 13.8% at the end of March from 11.5% at the end of 2019, according to CoStar Group, a real estate data provider.

Hotel operator InterContinental Hotels Group recently listed 234,000 square feet at the Ravinia complex in Dunwoody for sublease. Credit card issuer Synchrony Financial and healthcare software maker nThrive are also trying to sublet large segments of their Alpharetta offices.

As of April 27, about 6 million square feet of office space in metro Atlanta was listed as available for sublet, according to CoStar. That’s an 88% increase from January 2020 and the highest since 2009.

About 1.8% of all office space in metro Atlanta is available to be subleased, up from 1.1% a year ago and also the highest since 2009, according to CoStar. Still, it’s better than the national average of 2.4%.

A sublease lets the tenant recover a portion of money it would otherwise be throwing out the window if desks are expected to remain empty indefinitely. Landlords also like it when absent tenants sublease space because it makes them less likely to default on lease agreements, said Brooks Morris, a principal at brokerage firm Cresa.

Perhaps most importantly these days, a sublease lets executives delay making a decision on office space. Considering recent announcements from large companies about when people will return to the office, it’s a decision that many don’t want to make right now.

“Nobody knows how this is going to play out,” Morris said. “How much of your workforce will be remote? How much will be hybrid? Will workers come in two, three or four days a week? This will all impact how much office you need.”Explore

Delta Air Lines, which is encouraging businesses to resume travel, recently said it plans to start reopening offices in June. ExxonMobil and JPMorgan Chase also will bring workers back soon.

Other companies are being more cautious about returning to the office, such as Deutsche Bank and Salesforce.

IHG, the hotel group, decided to sublease “multiple floors” at 3 Ravinia as “we have reevaluated our mix of remote/flexible options for employees versus traditional office work environments,” spokesman Jacob Hawkins said in an emailed statement.

“Nobody knows how this is going to play out. How much of your workforce will be remote? How much will be hybrid? Will workers come in two, three or four days a week? This will all impact how much office you need.”- Brooks Morris, a principal at brokerage firm Cresa

The huge sublease supply could get some employees back to the office sooner, said Scott Amoson, research director at Colliers International’s Atlanta office. Businesses can get a great deal on top-shelf office space in the nicest buildings. The average price in December to sublease Class A office space in metro Atlanta was $24.25 per square foot a month, compared to $32 for an office that’s not a sublease.

“That’s a pretty significant financial savings for a company looking to keep its real estate costs at a minimum,” said Amoson, whose company invests in and manages commercial real estate.

Landlords are also offering huge concessions to compete with cheap sublease space, such as converting tenant improvement allowances to free rent, said Brooke Gothard, a vice president at real estate firm JLL. One landlord, whom she declined to name, offered to buy a potential tenant’s unwanted furniture to close a deal, an offer worth about $150,000.ExploreOffice landlords in quandary as COVID rages and employees work from home

A small portion of Atlanta’s sublease supply resulted from new buildings that opened in 2020, said David Kahn, an analyst at CoStar. But the new offices aren’t the reason for the subleasing surge.

“Most firms moving into new projects time it so they move right when their lease expires” and the space they leave behind is not a sublet, Kahn said.

Even more new office buildings are projected to open this year, but those won’t impact sublease supply either, Kahn said. Most upcoming new buildings have already lined up tenants, such as Microsoft at Atlantic Station and Google at 1105 West Peachtree.

For business executives already ensconced in their office buildings, many see entire floors that remain empty. Since there’s no way to know any time soon how things will shake out, the best decision is probably to hang on to those offices a little while longer, but try to recover however much money you can, JLL’s Gothard said.

“A lot of large corporations are looking around and saying, ‘hold on, why do we need to have these massive office buildings if they’re going to be empty’,” she said.