In 2021 increased remote work has led to an increase in sublease space on the market. This has created tremendous leverage for tenants during negotiations and, for the foreseeable future, creates a very challenging dynamic for landlords.

Sublease space has become increasingly more attractive for its pricing, the plug-and-play nature of the space and flexible lease terms, especially for tenants that are beginning to get an understanding of what their return-to-office strategy will look like.

Many tenants are now looking mainly at sublet opportunities to take advantage of high end build-outs and finishes and discounted rents.

New Jersey landlords didn’t see the same surge of companies move to NJ as residents that fled to NJ to move their homes. In NYC, about 10% of sublease space offers terms expiring within the next 18 months. By contrast, over 50% of the sublet square footage has more than three years of term remaining.

Until more of the sublease space either gets leased, or tenants remove their space from the market in plans of returning to the office, landlords are going to struggle to lease space and compete against the short term subleases. Lack of absorption and direct leasing of space will continue to apply pressure on landlords to consider lowering face rates or offering higher concessions and work letter allowances.

There is so much unknown for the balance of 2021. Yet the difficulty for landlords to navigate and compete against sublets isn’t going away anytime soon.