It is no surprise that the commercial office market was extremely disrupted during the pandemic. However, the lasting impact on commercial real estate decisions is beginning to be realized and stabilizing as a majority of companies have now made their first (or second) real estate decision post-pandemic.
As we continue to watch the unfolding trends in office leasing throughout Greater Boston, there is one noteworthy trend that we are seeing in 2025 among the largest office deals being inked this year. We are seeing many deals over 25,000 SF being subleases rather than direct office deals. This includes Advisor360 taking over the TripAdvisor sublease and CyberArk subleasing IDG’s headquarters in Needham.
WHY? There are a few market factors that have caused this trend:
- Cost of Construction – Construction prices continue to dictate a landlord’s ability to get aggressive on lease economics. When new paint, carpet, and adding a few glass offices can run over $60/SF for construction costs, a landlord finds it very difficult to discount rents and still make a return in a 5-year or shorter lease.
- Decreased Value of Office Space – With a majority of companies working from home at least 1 day a week, companies see a lower value for their office space due to lower utilization. This has led to company executives looking for rent discounts in order to justify a change to their real estate.
- Flexibility – While companies have a sense of office utilization, that doesn’t mean executives are happy with the current work-from-home policy. We see many executives looking for short-term leases with the hope that in the next few years they will be able to increase the number of employees coming to work. Additionally, they are looking at move-in ready spaces with furniture available and high-end finishes already in place, as it reduces costs and allows for a faster relocation.
Pitfalls to Subleasing vs. Direct Leases:
- No Direct Communication with Landlord – In a sublease, all communication with the landlord of the building is done through your Sublandlord. This can cause additional delays for maintenance issues or financial questions.
- No Negotiation of Governing Lease – The lease that was signed between the Landlord and Sublandlord governs your sublease. While some pieces may be negotiated in the sublease, overall, you are stuck with the direct lease and its language.
- Risk of Sublandlord Default – We have had several clients take sublease space from a company that later went out of business or was in default. Depending on the sublease language, this can mean your sublease is void and can lead to a sudden renegotiation or relocation of your space.
- Little/No Allowance for Buildout Improvements – Subleases very rarely offer any capital towards buildout. Typically, free rent is provided instead. If you need any specialty work or need to make major improvements to a space, a sublease may not be financially more efficient.
- Short Term Rental Discount with Large Uptick for Direct Renewal – In many Class A subleases, the Sublandlord is offering a very discounted rent. This is great for the short term, but if you and your employees enjoy the Class A amenities and image, it can be a large financial burden when the sublease expires and you have to pay in some cases a significantly higher direct lease rate.
Questions about whether a sublease or a direct lease is the right next move for your company? Speak with the Corporate Real Estate team at R.W. Holmes Commercial Real Estate to analyze your real estate options and create a strategy custom tailored to your business.
Elizabeth Holmes, Director of Corporate Services
eholmes@rwholmes.com | 508-655-5029