This is from Canada, still somewhat indicative of the US.
globeandmail.com
Sublet space soars as economy slumps
Millions of square feet of available offices
drive down some rents 20%, study shows
OLIVER BERTIN
REAL ESTATE REPORTER; Source: CB Richard Ellis Ltd.
Tuesday, June 26, 2001
Companies across the country are trying to sublease millions of square feet of office space as they downsize through the economic slowdown, according to a recent study by CB Richard Ellis Ltd.
There is now so much space available for sublease in some cities that rents have come down by 20 per cent since March, CB Richard Ellis said in its study.
The Toronto-based commercial real estate broker found 7.8 million square feet of office space available for sublease in Canada's eight major cities, up 72 per cent since its last survey in the first quarter.
Most of the sublet space is coming on the market in the high-tech enclaves of suburban Toronto and suburban Ottawa, the latter a region dubbed Silicon Valley North because of the prevalence of high-tech companies in the area.
But the study found that many other industries across the country are consolidating, downsizing or cutting back space in their drive for more efficiency.
"The primary reason for the sublet increase has been the uncertainty of many Canadian business executives about the economy as a whole," said CB Richard Ellis president Blake Hutcheson. "They have had their brakes on since January."
He added that many companies planned expansions during the recent economic boom. Those plans have now been cancelled or reversed, leaving the companies with far more space than they need.
"The first thing they ask is: 'Do we have extra space? Let's put it on the market,' " Mr. Hutcheson said.
The CB Richard Ellis study found the hardest-hit community was the Ottawa suburb of Kanata, home to Nortel Networks Corp. and a host of smaller telecom companies.
Ottawa now has 1.4 million square feet of space available for sublease, up from 376,000 square feet in the first-quarter survey. About 97 per cent of that space is in Kanata and other western suburbs.
"Many [high-tech] companies reduced employee levels, others put expansion plans on hold, and some went out of business altogether," Mr. Hutcheson said.
In other cities, banks have been consolidating operations to cut costs or putting their plans on hold until they see the outcome of merger proposals.
In Toronto, CB Richard Ellis found 3.1 million square feet of space available for sublease, up from 2.4 million in March. Half that space is in the suburbs.
In London, Ont., the downtown vacancy rate has shot up to 14.8 per cent, nearly double the national average of 7.8 per cent, while the Vancouver vacancy rate has risen to 7.4 per cent from 5.3 per cent.
But the broker added that the real estate market remains very healthy in other areas of the country. Downtown Toronto has an "incredibly low" office vacancy rate of 5.1 per cent, while Montreal and Vancouver are even lower at 4.5 per cent, and downtown Ottawa has a mere 0.9-per-cent vacancy rate.
Other commercial real estate brokers have seen a similar trend in recent months. Vancouver-based Colliers International said last week that the amount of sublease space has tripled in Toronto over the past three months. Keith Reading, associate vice-president of research, blamed the "the tech meltdown" and its impact on related industries.
Royal LePage Commercial Inc. found an almost identical trend in its own studies, said David Wood, vice-president of information and e-business for the Toronto-based broker.
The sudden dumping of excess office space on to the market has knocked rental rates sideways.
In Ottawa, CB Richard Ellis found the average net rent for class A space has dropped to $18.41 a square foot from $23.22, a slump of 21 per cent, while in London, the average net rent has fallen by 18 per cent to $9 a square foot.
"Tenants have more alternatives with large amounts of sublet space on the market and they can usually lease sublet space at a lower cost," Mr. Hutcheson said.
Office sublets increase across Canada
Sublet rate as a % of vacant space, 2001 First quarter Second quarter
Montreal 15.7 22.4
Ottawa 28 61
Toronto 22.1 26.4
London 0 9.8
Calgary 16.8 25.9
Edmonton 3.9 12.8
Vancouver 11.6 17.5
Canada 16.4 25.7 |
