10 US Markets Lead Historic Office Sublease Availability

When office market conditions begin to favor tenants over landlords, market participants turn a keen eye toward sublease availability. And currently, there’s plenty of sublease space to go around.

As of March 2023, office sublease space totaled 210 million square feet, the highest amount ever recorded by CoStar, the publisher of LoopNet, representing 2.5% of the total U.S. office inventory. As a point of comparison, during the Great Recession, available sublease space in the U.S. peaked at 147 million square feet, or 1.2% of total office inventory in the second quarter of 2009.

CoStar projects that 2023 will be the fourth consecutive year of negative net absorption — by millions of square feet — in the U.S. office market, despite unemployment remaining below 4% since February 2022. Additionally, the companies that are signing office leases are downsizing their footprints by 15% to 30% on average.

These conditions are contributing to sublease availability as companies opt to make excess office space available to subtenants.

To assess the impact of sublease space on office markets, CoStar generated a list of the ten markets with the most sublease space available as a percent of total inventory, as of March 2023. Included are markets with a minimum of 100 million square feet of office inventory. The markets with the most sublease space are:

1. San Francisco
2. San Jose, California
3. Austin
4. Phoenix
5. Denver
6. Seattle
7. New York
8. Boston
9. East Bay, California
10. Northern New Jersey

LoopNet drew on CoStar market reports and expertise from CoStar analysts specializing in each market. The assessment below identifies several themes across markets, compares sublease space available today against levels posted during the Great Recession and highlights some of the largest blocks of sublease space available in each area.

San Francisco tops the list with the most available sublease space, representing 6.3% of total inventory, followed by San Jose at 4.3%. The remaining eight markets range between 3.9% and 3.0% of total inventory.

In the ten markets with the most absolute sublease space, the combined amount totals 95.5 million square feet. Just three markets account for more than half of that total figure: New York (31 million square feet), San Francisco (11.9 million square feet) and Boston (11.5 million square feet).

Looking at the numbers regionally, five of the markets on the list are concentrated in just two regions: the New York/New Jersey region, where 35.7 million square feet of sublease space is available, and the San Francisco Bay Area with three office markets on the top ten list, totaling 21.6 million square feet.

Phil Mobley, national director of office analytics at CoStar, indicated that among the 210 million square feet of sublease space currently on the market in the U.S., the majority (118 million) is classified as 4-Star, followed by 62 million rated 3-Star and 22 million labeled 5-Star, representing trophy-quality office space.

He indicated that most of the space being marketed is 4-Star because it is sought after space. “There just isn’t as much of a market for 3-Star space in general,” so companies in lesser quality space are not motivated to go through the hassle of relocating employees to free up space that is unlikely to be sublet.

A few key themes emerged across the ten markets:

• Tech-heavy markets have the most sublease space.
• Companies returning the largest blocks of space are established firms and not necessarily startups.
• The difference between asking rents for comparable direct and sublease space seems to be hovering around 20%, though the spread in some cases is much higher.
• Brokers for landlords and tenants are marketing sublease blocks jointly to offer both short- and long-term opportunities to interested parties.
• Most of the available square footage figures are at least two times greater than those posted during the Great Recession that began in 2008.

The office market with the highest concentration of sublease space is San Francisco, where nearly 12 million square feet of sublease space is available, representing 6.3% of total office inventory. That’s more than double and approaching triple the sublease space availability in San Francisco during the Great Recession, which peaked at 4.7 million square feet in the second quarter of 2008, representing 2.9% of total office inventory.

Technology companies account for the glut of sublease space, with some of the largest blocks offered by Meta (435,000 square feet at 181 Fremont Street), Salesforce (412,000 square feet at 50 Fremont Street) and Slack (208,000 square feet at 500 Howard Street) in downtown San Francisco.

In the suburban markets of San Mateo County and South San Francisco, leasing from life sciences companies kept absorption positive and vacancy steady at about 10%. However, according to CoStar’s Nigel Hughes, a senior director of market analytics, the vacancy scenario “is changing fast. Within the last month, Meta added almost 500,000 square feet of sublease space in Menlo Park.”

Hughes noted that quality sublease space is in demand. After sublease availability rose in 2021, much of the space that came available in higher-quality buildings was quickly taken by tenants looking to upgrade, whereas sublease space in mid-quality buildings saw very little interest.

The second highest concentration of sublease space is in San Jose. The 6.1 million square feet of sublease space available represents 4.3% of total office inventory. The market faces challenges as the amount of sublease space today is roughly twice that available during the Great Recession. In the second quarter of 2009, sublease space peaked at 3.4 million square feet, or 3.3% of total inventory.

Some of the largest sublease blocks are being offered by Meta (218,000 square feet at 401 San Antonio Road in Mountain View), 8x8 (178,000 square feet at 675 Creekside Way in Campbell) and 23 and Me (155,000 square feet at 221 North Mathilda Avenue in Sunnyvale).

Despite these availabilities, 12-month net absorption has remained positive at about 2.1 million square feet, exceeding the historical average of 1.8 million square feet. Hughes said that the amount of sublease space in Silicon Valley is increasing at a time that coincides with an uptick in new office space construction, much of which is not preleased. “This increase in supply will provide great opportunities for tenants, but it will be a tough leasing environment for owners,” Hughes noted.

In Austin, sublease space that flooded the market 18 months ago fell significantly to about 2 million square feet in the second quarter of 2022, but sublease availability is once again climbing, according to CoStar. Currently, sublease space sits at 5.2 million square feet or 3.9% of total inventory. This square footage is more than three times greater than peak sublease availability during the Great Recession of 1.6 million square feet posted in Q2 2009, representing 1.6% of total inventory.

Unlike the previous two markets in the Bay Area, where the largest blocks are offered by technology companies, a variety of tenants and industries account for the surge in Austin’s sublease availability, according to Israel Linares, a senior market analyst at CoStar. They include: SolarWinds (230,000 square feet) at 7171 Southwest Parkway; Superior HealthPlan (216,000 square feet) at 5900 East Ben White Boulevard; and General Motors Company (170,000 square feet) at 717 East Parmer Lane.

Linares added that Meta has not officially listed their office space at 400 West 6th Street, even though it is well known in the market “that it is their intention not to occupy the space.”

Sublease availability in Phoenix currently sits at 7.5 million square feet, or 3.8% of total office inventory. This is up significantly from an average of 2.1 million square feet in the decade leading up to the pandemic, according to Connor Devereux, a CoStar director of market analytics. This figure is also nearly three times above the peak recorded in Q2 2009 of 2.8 million square feet of sublease space available, representing 1.6% of total office space then.

The largest blocks of space on the market do not come from the tech sector and instead come from the auto, healthcare and insurance industries. Carvana is marketing 268,000 square feet at Apollo Corporate Headquarters, Centene Corporation is offering 236,000 square feet at Liberty Center at Rio Salado, and AAA has made available 206,000 square feet at its Glendale Operations Center.

Devereux noted that sublease space is concentrated in the Tempe and Chandler markets, where expanding tech companies over the last few years “targeted those submarkets to set up regional operations.”

Conversely, Devereux said that submarkets like the Camelback Corridor and Scottsdale Airpark have held up better. “These areas have a tenant base more heavily weighted toward law, healthcare, real estate and finance firms, which are more reliant on their physical footprints and have been less willing to relinquish space.”

Available sublease space in Denver is currently at a record high, with availability growing by 2 million square feet in just the last year, according to CoStar. Sublease availability currently stands at 6.9 million square feet, or 3.7% of total office inventory. The current amount of available office sublease space is approaching three times that posted during the Great Recession, when available sublease space peaked at 2.9 million square feet, or 1.7% of inventory in Q1 2009.

Among the largest sublease listings are Computershare’s 283,000-square-foot block at 6200 South Quebec Street; AT&T’s 257,000-square-foot offering at 161 Inverness Drive and ADT’s 123,000-square-foot listing at 3190 South Vaughn Way.

“Denver’s high concentration of energy and tech tenants has been a driving force behind the market’s rising sublease inventory,” said Jeannie Tobin, a CoStar director of market analytics. She explained that energy companies were hit particularly hard at the start of the pandemic from decreased demand for fuel worldwide.

“In the past, space vacated by energy tenants was largely backfilled by tech companies, but that changed during the pandemic, and even tech tenants were hesitant to lease office space amid the uncertain environment,” Tobin said.

Sublease availability continues to be a drag on the Seattle office market. Among the hardest hit submarkets for sublease availability is Seattle’s downtown, where most sublease space is available.

Current sublease availability stands at 7.3 million square feet, or 3.2% of total office inventory. The last peak of sublease space occurred at the height of the Great Recession, reaching about 3 million square feet (roughly 1.6% of total inventory) or less than half of what it is today, said Elliott Krivenko, a director of market analytics at CoStar.

Major blocks of sublease space on the market include a 356,000-square-foot offering by Amazon at Rainier Square in Downtown Seattle, in a new building that Amazon never occupied. State Farm Insurance is offering its 349,000-square-foot building in Dupont, Washington, that will likely revert to a direct offering this year when the lease expires. Meta is marketing a 193,000-square-foot building in the South Lake Union neighborhood of Downtown Seattle.

Krivenko noted that “slow leasing activity and increasing availability portend an extended slump in the area office market. It’s possible this means we have not seen the peak of sublease availability and an additional pullback by large tech companies could add additional space to the pool of available subleases.”

New York’s massive office inventory — approaching 1 billion square feet — includes the largest total amount of available sublease space in the country at 31 million square feet, or 3.2% of the market’s inventory.

The current 31 million square feet of sublease space surpasses the 22 million peak in 2009, which was 2.3% of inventory, and is 10 million more than the level posted two years ago (29.8 million square feet in Q2 2021), indicating that sublease space is climbing at a good clip.

Some of the largest sublease blocks available include 554,000 square feet from Ogilvy at 636 11th Avenue and 453,000 square feet from Warner Media at 30 Hudson Yards, both in New York City. Macy’s is marketing 390,000 square feet at 28-01 Jackson Avenue in Long Island City.

CoStar noted that conditions are unlikely to improve in the near term as tech companies, who have been among the most active lessors of New York office space over the past decade, have laid off tens of thousands of workers across the U.S. over the past year.

Despite the recent uptick in leasing activity, New York still counts 14.9 million square feet of office space in the construction pipeline. Other issues contributing to the supply/demand imbalance include firms looking to relocate to more tax-friendly markets or choosing to reduce their office footprints as they spread out their workforce.

Victor Rodriguez, a senior director of analytics at CoStar, told LoopNet that “the significant increase in workers heading into the office over the past year has not at all slowed the continued addition of sublease space in New York; a fact that indicates the pain is far from over.”

Despite Boston’s diverse economy, demand for office space is declining. Net absorption has been negative, vacancy is rising and asking rents are flat or declining.

Available sublease space has jumped by almost 2 million square feet in less than one year and stands at 11.9 million square feet, or 3.1% of existing office space. That’s about double the peak reached during the Great Recession, when sublease space in Q4 2009 reached 5.6 million square feet, or 3.7% of total inventory. While the square footage figure is significantly higher today, the increase in office inventory over the past 15 years means that the significantly higher absolute sublease amount is today a smaller percentage of overall inventory.

Some of the largest blocks of sublease space on the market include 308,000 square feet at 920 Winter Street in Waltham from Fresenius Medical, 200,000 square feet at 10 Saint James Avenue in Boston’s Back Bay from Wayfair, and 185,000 square feet at 300 Binney Street in Cambridge from Biogen.

Chris LeBarton, a director of market analytics noted in a CoStar News article that “chipping into this glut of sublease space will not be easy.” While brokers, owners, and lenders expect many leases to be signed in the coming year, firms are estimated to be downsizing their footprints by 15% to 30%.

The East Bay market of California, including Oakland, accounts for 3.6 million square feet of office sublease space, or 3.1% of total inventory. This makes up roughly 20% of all available office space (direct and sublet) in the market, according to CoStar. During the Great Recession, sublease availability peaked in this market at 1.7 million square feet, or 1.5% of total inventory in Q2 of 2009.

William Austin, a director of market analytics at CoStar, told LoopNet that among the three largest blocks of listed sublease space in the East Bay are 186,000 square feet from AT&T at 5001 Executive Parkway in San Ramon; 185,000 square feet from General Electric at 2623 Camino Ramon in San Ramon, and 78,000 square feet from Callisto Media at 1955 Broadway in Oakland.

Sublease availability is likely to increase in the near- to medium- term as “office-using firms continue to reevaluate their real estate needs, giving back space in the process,” Austin said. “The East Bay saw significant expansion in the tech sector prior to the pandemic and as that industry pivots to new real estate strategies, more sublease space will enter the market.”

The Northern New Jersey office market currently lists 4.7 million square feet of sublease space, or 3.0% of total office inventory. This is well above the Great Recession peak, when 3.7 million square feet of sublease space (or 2.3% of inventory) was available in Q2 of 2009.

Major sublease blocks include buildings B and C at Sanofi’s North American headquarters, totaling 437,000 square feet; an undisclosed tenant at 300 Somerset Corporate Boulevard in Bridgewater listing a 310,000-square-foot block since 2016 with a term running through July 31, 2025; and a PSE&G sublease on floors 12 through 20 at its headquarters in Newark totaling 266,000 square feet.

According to Mateusz Wnek, an associate director of market analytics, many of the submarkets with the most sublease space include “suburban campuses that were developed to serve, to a large degree, massive back-office operations.” Many of those job types are being eliminated due to technological advancements and “the current business climate is pressuring companies to pursue cost optimization strategies, of which real estate footprints are a major focus.”

For those reasons, he expects “the older, obsolete stock to continue to see high levels of sublease space become available, particularly in the submarkets that feature dated office parks.”