Subletting Office Space
Have you got too much office space? Are you unsure what to do with it? If so, you’re probably considering subleasing part of your office space. But how do you know if it is the right option for your company?
We’ve been helping companies across the UK with their workspace strategy since 2008. In that time, we’ve helped many companies decide if they should sublease their office space or not, and carried out the design & build package to enable it.
In this article, we’ll explain 3 common reasons you might want to sublease your office. We’ll also explain the advantages and disadvantages of subleasing. By the end, you’ll have a good idea whether subleasing is the right option for your company or not. If it’s worth exploring further, you’ll be ready to talk to an expert to get bespoke advice.
3 Reasons to Sublease Your Office
With the recent economic turmoil, many companies have excess office space. As a result, these companies are considering subleasing their excess office space. However, how do you decide if subleasing part of your office is right for you? Here are the 3 most common reasons companies sublease part of their office.
You Don’t Need The Space Anymore
Whether you are planning to continue hybrid working, or have reduced your staff headcount in recent years, you simply don’t need as much office space as you used to. Many office designs also waste 30-40% of the footprint, so redesigning your office could also reduce the amount of space you need.
You Don’t Need The Space Yet
Your company may be planning significant staff growth in the coming years, so you need easy access to more office space in the future, even if you don’t need that space right now. One option is to lease a large office space, and sublease part of it for several years until you are ready to use it yourself.
You Need to Move Before Lease-end
Whether you have completely outgrown your current office or it's for another reason entirely, you need to move office. However, if you still have several years left on your lease, ending it early could be very expensive. In this situation, you could sublease the entire office to another company for the remainder of the lease term.
Advantages of Subleasing Your Office
The exact benefits of subleasing your office and the extent of those benefits will be different for every company. However, there are two major benefits that companies see in subleasing their office:
Offset Leasing Costs
By far the biggest attraction of subleasing your office is the additional income it provides. Real estate is the second highest overhead for most companies. It can be nearly 20% of revenue for professional services companies. Gaining consistent additional income via a sublease would help offset your real estate costs.
Helps Right-Size Your Real Estate Portfolio
Another common benefit companies see in subleasing part of their office is that it gives them the ability to get the right amount of office space. Subleasing is often more flexible and has shorter term lengths than conventional leases. This means you could take the subleased space back if or when you needed it for your own business.
Disadvantages of Subleasing Your Office
Despite the perceived benefits of subleasing your office, there are also several major drawbacks. It is more complex and less lucrative than many people think. Here are the 3 major drawbacks of subleasing your office space.
Restrictive Regulations
Before subleasing your space, you would need the knowledge and formal approval of your landlord. However, your own lease will likely contain restrictions or even a prohibition on subleasing. This may involve an increased rent or service charge for you as well as the landlord. There may also be restrictions on who the tenants can be, as well as restrictions on the terms of the sublease.
Upfront Cost
To be able to sublease part of your office, that space will have to be completely independent from the rest of your office. This involves much more than just partitioning off the new space. The air conditioning, sprinklers, power, data, lighting, and building management system will all need adapting to make the space independent. As a result, preparing your office for subletting may involve significant cost. This cost may be lower if you plan to sublease an entire floor, or your landlord has designed the space to be leased in separate parts.
Difficult to Find Sub-tenants
The greatest difficulty many companies have when subleasing their office is finding a suitable tenant. Especially currently, the supply of sublease office space is significantly greater than the demand. As a result, it often takes a long time to find a tenant, and the rent you can charge is often relatively low. As a result, the overall returns are lower than you may have expected.
Should You Sublease Your Office?
Deciding whether or not you should sublease your office is a complex decision. There is no definitive answer – whether you should or not will depend on your unique situation. There are a lot of complex factors and uncertainties, so we can’t say whether you should sublease your office or not without knowing more about your situation.
If you know of a willing subtenant and your own lease agreement is not too restrictive, then subleasing your space could be very beneficial. However, making a big investment to prepare the space without any options for potential tenants is very risky, especially in the current real estate market.
Subleasing Your Office
In the right situation, subletting your office can provide major benefits to your company. You gain a consistent source of additional income that helps offset your own office lease costs. You also have an office space that is the right size, instead of a half-empty office that creates a depressing atmosphere for the staff in the space. It also provides the flexibility for you to retake the space, should you need it in future.
However, subletting your office is undeniably challenging. It can be very difficult to negotiate with your own landlord to allow you to sublease, and your space may require expensive refurbishment works to make part of your office independent. Worst of all, you may struggle to find a tenant – certainly at the rental rate you had hoped for. All this means that the ROI of subletting is rarely as high as companies expect it to be.
Know you know about common reasons companies like you consider subleasing their office, as well as the major benefits and drawbacks of leasing part of your office. You are now able to decide if subleasing your office isn't right for your company or if it's worth exploring further. If you think it is worth exploring further, read how to sublease your office. We’ll explain the process you’ll go through to sublease your office, from deciding if you should to finalising the contract.
To learn more about preparing your real estate strategy for the future, read How To Future Proof Your Office. We’ll go through some of the most important trends as well as how you can best position yourself for the future of the workplace.
