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Considering Subleasing Unused Office Space? Start Here
Aug 5 2021
In a world that grows increasingly more hybrid and flexible each day, the need for office space is constantly evolving. As we approach the return to office, more and more organizations are rethinking how they use their office space and looking for new opportunities to shed unused space. Of the 84% of enterprises that plan to return to the office in 2021, 74% will be returning with a hybrid approach. Meaning, the need for office space is changing.
If you are toying with the idea of subleasing your unused space, start here.
Reasons that Companies Sublease your Office Space
With so many employees choosing hybrid schedules, top organizations are maintaining office real estate, but diversifying what these spaces look like and how they serve the workforce.
Here are some common reasons why organizations may choose to sublease parts of their corporate real estate portfolio:
- Companies have downsized recently and no longer need the entirety of their office space.
- Companies are allowing employees to work on flexible schedules, so the population of on-site workers each day is fewer than in the past.
- Companies would rather avoid paying the associated costs of breaking a lease early.
- There is a rise in startups or smaller companies in a certain area looking to sublease property.
- Growing organizations want office space that they will need eventually, but not yet.
- Companies on a hiring freeze and looking to fill their office with short-term subtenants until hiring efforts resume.
How to Sublease Office Space: The 7 Steps
Whether you are subleasing your office space for the short term until your company grows to need the space or on an ongoing basis as part of a larger real estate strategy, the process of subleasing unused office space remains the same.
Step One: Assess whether spaces will continue to be underutilized
Office space utilization rates plummeted during COVID in the last year and a half, but with offices reopening and hiring increasing, companies don't want to go through the trouble of subleasing their spaces only to realize they don't have enough room for their own employees. The last thing they want to happen is cram their employees into too small of a workplace, hindering productivity and employee engagement.
Consider what people need spaces for, will you require more:
- Collaborative spaces?
- Spaces for large gatherings?
- Flexible spaces that have multiple uses?
- Individual spaces?
Evaluate your current and future needs carefully to set your organization up for meaningful appropriation of space.
Step Two: Assess which spaces are being underutilized
Companies are turning to “smart campuses” and right-sizing their real estate portfolios using workplace analytics platforms like VergeSense to identify trends in which rooms, floors, and buildings are most popular (and they should keep) versus those that are least used and possible candidates for subleasing to other companies.
Tools to Assess Corporate Space Utilization
When analyzing spaces and trying to determine which spaces are used by your employees and which are less popular, use data to drive these decisions. By continuously collecting workplace data like which floors or spaces are occupied over a specific time period,, you can discover trends and optimize your spaces for the ways your employees work.
1. Capacity Management
People counting sensors like VergeSense capture a complete view of office utilization from campuses, to buildings, to floors, to rooms. With a dashboard showing capacity and utilization, you can get a quick, live snapshot of your real estate (globally.)
2. AI-Powered Area Sensors + Signs of LifeTM
Beyond the holistic view of your office buildings, you can use data from AI-powered sensors to capture more granular data to determine which individual desks or meeting rooms are in use and which are available. This supports hybrid working and gives employees the ability to quickly check if the office is crowded, or book a meeting room that is unused at the moment.
3. Workplace Analytics
Data is only as powerful as the practical application of it and having an easy to use dashboard to interpret it. With a workplace analytics platform like VergeSense, you can analyze real estate use trends for your organization to optimize your working spaces and trim the fat of spaces that aren’t being successfully utilized. Find out if people are taking advantage of collaborative vs individual spaces, which days of the week are most popular, and more.
Explore VergeSense’s real estate assessment tools and data capture technology that can be implemented across your portfolio and start thinking strategically about workspace usage--before you decide to take the subleasing plunge.
Step Three: Revisit your lease.
Before you can begin the process of finding a tenant, you first need to revisit your lease to ensure subleasing is permitted in your contract. If you fail to do this step, you risk acquiring a subtenant and drafting a sublease all for nothing when you realize later that subtenants aren’t allowed in your leasing contract.
To be thorough, have an attorney revisit your lease in order to determine if subleasing is allowed and if it is, what the specific terms and conditions of subleasing are. The key here is to be thorough. No matter how much you save by renting out your office space won’t outweigh the cost of breaking your leasing contract. Additionally, you are choosing to sublease your office instead of moving entirely. Since you will maintain your landlord during this process, you want to remain in their good graces for the duration of your time occupying their facilities.
Step Four: Talk to your neighbors.
The process of finding the right tenant can quickly turn into an arduous task if you aren’t properly prepared. To make the process a little easier on yourself, start by asking those already working in your building or nearby. You just might find a company to connect with that is looking to grow their office space at the same time you are looking to sublease your unused space.
Best case scenario, you can use this tactic to sublease to a company you already have a relationship with— making the process of finding subtenants that you trust to be responsible occupants all the more easier. Worst case scenario, you spend some time spreading the word about your unused office space and this word of mouth approach leads to connecting with your neighbors in a new way.
Step Five: Screen subtenant applicants
Once you decide to sublease your unused office space, the quest to find subtenants begins. This process is not unlike the vetting process for new clients. Before you whip out a contract and prompt them to sign on the dotted line, take the time to find the right tenant for your sublease. You want to find a person, group, or company that shares similar values to yourself and whom you trust to be favorable tenants.
Next, further screen your applicants to find only those who are capable of paying their share of the rent, on time and in-full. Remember, regardless of if your subtenants pay their rent, your organization is still responsible for paying your landlord.
Finally, choose subtenants whose presence you enjoy, instead of just tolerate. The goal of subleasing is to save property costs, but if you rent to tenants that prove to be intolerable then you may find yourself months in your sublease weighing the cost of a headache.
Step Six: Determine your leasing price.
Determining the appropriate rent to charge your subtenants can quickly become a highly-involved process if you approach it unprepared and with little industry knowledge. After all, choosing your leasing price isn’t as simple as picking a price that seems fair and moving on. You’ll want to offer potential tenants a fair rate, but also a price that you can support with reasoning for how you arrive at it. To determine your leasing price:
- Revisit your leasing contract once more to see if there are any guidelines for subleasing. For example, some leases prohibit tenants from charging enough rent to make a profit from their subleases— as opposed to only charging enough to cover their share of the rent.
- Businesses are typically interested in subleasing due to the reduced cost compared to simply signing a short-term lease with their own landlord. When determining your leasing price, keep this in mind to avoid inadvertently upcharging your subtenants.
- Consider requesting a security deposit to cover any potential office space damage that may occur. A typical security deposit rate for commercial subtenants is one month’s rent.
Step Seven: Draft the terms of your sublease.
Your sublease is more than a rent price scribbled on a piece of paper and slid across a conference room table. Instead, you will need to compose a sublease that takes into consideration a variety of factors that may arise over the course of the sublease. When drafting your sublease, be sure to include discussions on topics such as:
- Lease terms and the potential for resigning
- Renovations, remodeling, or rewiring of office space
- Utility payments
- Any shared amenities, like access to an office building parking garage, on-site gym, on-site cafeteria, or other office services
- Any other potential changes to the office environment
Depending on how close you will be working to your subtenants, you may also want to include notes on your company culture in the sublease. As a general rule of thumb, the more you will be seeing of your subtenants, the more office space guidelines and policies you should include in your sublease. Once you have drafted your sublease, it is best practice to have an attorney ensure all paperwork is sufficient.
Takeaway: Subleasing space is a complex process and not one that should be entered into lightly. Consider all your options and make sure you have a strong understanding of how your employees are using your space first.
Right-sizing your real estate portfolio is one of the biggest challenges faced by global companies. Making the right moves can save (or cost) millions. Request a private consultation to learn how the VergeSense Workplace Analytics Platform can help you make data-driven strategic choices.
Right-sizing your corporate real estate portfolio can be a complicated process if you’re unprepared. To get started, here’s a beginner’s guide to right-sizing.
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