- Suburban sublease rents have held up so far, in contrast to the trend in Boston.
- Total sublease space has held steady over the past year, and the total available is actually lower than it was in the second half of 2019.
- Re-trades with higher TI packages are common, with most done deals (for direct space) with existing tenants.
- Several companies still have large active requirements for space in the suburbs, including ZoomInfo and Corrindus/Siemens. Life science remains a bright spot.
- PTC’s sublease at 140 Kendrick in Needham is attracting a lot of leasing (three deals out for 50,000 SF).
- Short-term commitments are the focus of many tenants today.
In our last sublease Disruption piece, we noted that historically, sublease rents have been more volatile than direct rents, declining more steeply in recessions. In today’s market environment, that has proven to be true thus far during the COVID-19 pandemic.
Sublease asking rents in Boston have already started to decrease, whereas direct rents have held relatively steady. In the suburbs, however, that is not exactly the case. While direct asking rents in the suburbs have also held up — as in Boston, deals have been re-traded with higher tenant improvement packages, or other incentives — sublease rents have yet to show a downward movement. The suburban sub–landlords feel confident about the desirability of their spaces, which offer considerable rent relief to Boston tenants who may want to leave their urban offices.
As shown below, the total suburban sublease supply has remained more or less the same in the past year, slightly increasing from Q1 to Q2 2020. Vacancy has followed a similar trend, going from 1.7% to 1.73%.
Looking ahead, it is still unclear where rents will fall in the near future, but we expect them to drop eventually. Both direct and sublease asking rents in the suburbs have yet to change at a market level. The suburbs have several large active tenant requirements outside of life science, including ZoomInfo and Corrindus/Siemens. Most deals getting done are with existing tenants extending leases.
On the sublease front, 65% of all available suburban sublease spaces total 15,000 SF each or less; that number stands at 71% for the urban sublease market. As tenants continue to favor short-term commitments, sublease spaces such as PTC’s at 140 Kendrick Street in Needham have been drawing a lot of interest and are expected to continue to do so. In fact, that space has three leases out for execution totaling around 50,000 SF.