Many companies have long-term space requirements, but situations can arise where subleasing space from another tenant makes both financial and strategic sense. Like any real estate transaction, subleasing comes with pros and cons that should be weighed carefully before making a commitment.
Let’s start with the basics: a sublease is when your company leases a space directly from an existing tenant rather than directly from the landlord. Typically, the tenant offering the sublease either has more space than they need or is preparing to vacate altogether—but they remain responsible for rent until their lease term expires. Because of this ongoing obligation, tenants looking to sublease are often highly motivated to strike a deal that helps offset their costs.
Advantages of Subleasing:
Payment chain: Rent is paid to the tenant, who then pays the landlord. This can be unnerving for some subtenants and can feel less secure.
Subleases can provide a great way to access quality space at a lower cost—but they aren’t without pitfalls. Availability varies by market and economic cycle, and every deal has unique risks to evaluate.
Lower rent: Sublease rates are often discounted since tenants are motivated to recover some of their costs. Of course the condition of the overall market will have a major impact on the rate being offered to potential subtenants.
Furnished options: Many subleases include furniture, or can be available to purchase at a sizeable discount.
Predictable costs: Subleases can sometimes be structured as gross leases, meaning you can expect one set monthly payment without variable operating expenses and real estate taxes.
Disadvantages of Subleasing:
Limited term: The sublease typically ends when the original lease does, which may not align with your timeline. In some cases it may be possible to get more term from the landlord, but in those instances the landlord will typically want a direct lease versus extending the term of a sublease.
Fewer rights: Renewal and termination options rarely carry over to subtenants.
Few improvements: Space is usually offered “as-is,” with minimal allowances for upgrades. It is possible that a long-term sublease could offer some tenant improvement dollars, but is not considered the norm.