DC Sublease Volume Spikes—Not That There’s Anything Wrong With That
The amount of available sublease space in the D.C. office market increased 21 percent in the second quarter, reaching its highest level since first quarter 2010, according to JLL.
The market saw 321,000 square feet of sublease availability during the second quarter, bringing total availability to 2.6 million square feet, a 17 percent year-over-year increase. Law firms and nonprofits accounted for more than 25 percent of the available space—50 percent and 16 percent of the recently added availability , respectively, according to CBRE.
“We started the year at 2 percent [for sublease availability],” Devon Munos, Savills’ research director for the D.C. region, said. “As of Q2, subleasing availability was at 2.2 percent, which is a pickup. The D.C. market has never seen more than 2.2 percent available. The last time we saw that was in 2013; and, in 2009, during the great recession, we saw high sublease space with 2.1 percent available. So, right now, we’re at a high for our market.”
While that high might get higher, too, it’s still low compared with other major U.S. office markets.
“We do expect to see more sublease space coming back to the market in the second half of 2020, which will be a lot for D.C.,” Munos said. “But, in comparison to other markets like San Francisco and New York, which are seeing an absolute flood of space, we’re relatively healthy.”
Nathan Edwards, Cushman & Wakefield’s senior research director for D.C., said increased sublet space may not be a threat to more conventional leases in the Washington market.
“Historically, the sublet market in DC has been relatively contained,” Edwards said. “If you look at what those opportunities actually are, a lot of them aren’t what we would consider leases that would compete with the market in that the terms associated with them are well below market, [such as] the length of lease available. If you dig into which of those sublet opportunities are 20,000 square feet or greater, and then have what would be considered a market length of lease associated with it, which would be seven years-plus, there’s about five realistic options today.”