More than 70 million square feet of sublease space has hit the market nationwide since the pandemic began.
The re-evaluation of office needs has trickled down to the Lowcountry as businesses, hit hard by the pandemic, have subleased to retain capital, according to Charleston Commercial Lee & Associates’ recent Office Market Update (.pdf).
Since December, the overall sublease space in the Charleston Metro has increased from 214,721 square feet to 865,573 square feet. The amount of sublease space on the Charleston Peninsula increased 1,936% from 3,512 square feet to 71,519 square feet.
Lee & Associates Managing Principal Reid Davis said while the spike is significant, the market is still healthy with a 10% vacancy rate. He also believes the rush to sublease is a knee-jerk reaction to the pandemic and likely impermanent.
“As of now, I think if you look at the big picture it’s not too concerning. We’re busy. We’re doing a lot of office leasing,” Davis said.
Lee & Associates is seeing good activity on its listings, although many existing tenants in the market either are downsizing or moving around. Ideally, Davis said they’d like to see more positive absorption with businesses expanding.
Benefitfocus had planned to move into a new campus, but Davis said the Blackbaud move was unexpected.
“What’s interesting about both spaces is, if you look at the whole market, there’s vacancy, but they’re not going to go do a 1,000-foot sublease,” he said. “So it’s really, as far as competing with other buildings, it’s a lot of space but the sublease stuff is mostly bigger chunks and not the small stuff.”
Davis thinks this trend is a little bit of a pendulum effect, strongly swinging in one direction.
With office employment still down 1 million jobs from peak volumes, companies that have been teetering on downsizing prior to the pandemic have tipped toward saying good riddance to the spaces. Two primary reasons are that fewer employees requires less space, and that productivity has remained constant during this work from home period.
“But all companies are going to grow again and realize in order to do effective training, recruiting and business development they will see they need more space,” he said. “I think a lot of folks will be coming back to the office. It’s a knee jerk reaction.”