Does a Sublease Make Sense for Your NYC Office Space?

It’s a question I’m asked often. In the right circumstances, a sublease can offer significant advantages. However, it’s important to understand exactly what you’re getting into.

I like to compare a sublease to the “final sale” rack at your favorite clothing store: everything is marked down an additional 50%, but all sales are final. As you look through the rack, you realize why these items haven’t sold—the sizes are either XXL or XXS, and the colors might not be your first choice. But every once in a while, you find a genuine gem at a great price.

The Three Main Advantages of a Sublease

• Cost Efficiency: Subleases can typically be secured for $.50 to $.60 on the dollar compared to direct market rates.
• Turnkey Ready: These spaces are usually furnished and in “plug-and-play” condition, saving you the cost of furniture, IT, moving, and the time it takes for a build-out.
• Flexibility: The terms are often shorter, which is ideal for startups or companies in a high-growth phase.

The State of the Market

The inventory of subleases is highly sensitive to the economic climate. Following the pandemic, the market was flush with sublease space as companies looked to shed excess square footage while employees worked from home. Fast forward six years: many of those companies have either re-occupied that space or returned it to the landlord as their original leases expired.

Moving forward, most companies have a better handle on their long-term headcount. While we likely won’t see another massive wave of sublease inventory, the market remains fluid. Mergers, acquisitions, and shifting business plans will always ensure a steady, if smaller, stream of opportunities.

Size and Stability: Why It Matters

Typically, it is larger corporations that put space on the sublease market. These firms have the financial stability to honor their lease obligations even when a space is underutilized.

Conversely, smaller companies often lack the capital to carry the costs of a sublease; if they no longer need the space, they are more likely to negotiate a surrender with the landlord or, in some cases, walk away from the obligation entirely.

The Negatives of a Sublease to Consider

If you find a sublease with a significant discount and an acceptable term, there are four key risks to keep on your radar:

1. “As-Is” Condition: A sub-landlord is rarely willing to spend capital on improvements. You must be able to make your operations work within the existing layout.
2. No Direct Relationship: You will not have a direct line to the building’s landlord. If an issue arises, you must go through the sub-landlord to resolve it.
3. The “Cliff” at Expiration: That steep discount has an expiration date. When the sublease ends, you’ll face a choice: pay full market rent to go direct with the landlord or undergo the disruption of relocating—which may mean moving twice in a short period.
4. Counterparty Risk: If the sub-landlord stops paying rent or goes out of business, the prime landlord is generally under no obligation to honor your sublease. While they may let you stay, it will likely be at the current market rate.

The Bottom Line

Getting something “on the cheap” comes with risks. But, if you get lucky and find that gem, a sublease can offer great savings or serve as a bridge to a direct lease as your business grows.

If you have questions on subleasing or would like to discuss your requirements and see what subleases are available, I would love to hear from you.

Paul Walker
Senior Vice President
212-984-7117
Paul.Walker@cbre.com