Before the pandemic, remote work arrangement was an occasional and optional setup. But since the start of the pandemic, it was what every business needed to adapt to the circumstances. Employers had to step up and keep their businesses running virtually.
The convenience brought by the remote work arrangement is subjective. Others may feel more relaxed working at home with their loved ones. But if your situation at home is not conducive for working — pets and kids that need attending for example — it might take a toll on you.
We all want to go back to the way things were. But as to when that would happen, it’s still uncertain. That’s why most employers whose businesses are still afloat or thriving are holding on to their leased office spaces. To cut on the expenses, empty offices convert and sublease their space to serve a different purpose.
What is Subleasing?
It starts with a lease agreement between the property owner and the tenant. Subleasing is when a tenant rents out their space to third-party clients. In analogy, think of it as finding a roommate that you can shoulder the apartment rent with. An office tenant may consider the subleasing option if:
- The company is downsizing but wants to create a new income stream with its empty real estate.
- The company is moving to a new location but still has an existing lease contract.
- The company has a surplus space due to remote work arrangements but may come back to office operations in the foreseeable future.
Office Subleasing Statistics
We can generalize that the tenants sublease their office spaces when they don’t have to use them for their direct operations. These situations are heightened during times of recession which is evident from historical data.
The Dot-Com Recession (DCR) which peaked at Q2 2002, and the Great Financial Crisis (GFC) which peaked at Q4 2009, have recorded the highest growth of sublease office space with 124 million and 89 million square feet, respectively. However, the recession brought about by the COVID-19 pandemic surpassed DCR by 6% and GFC by 49% during Q2 2021. This is applicable for the U.S.A, but the trend is also the same for Canada and Mexico.
When it comes to the demand side, the vacancy rates have dropped significantly since reaching their peak during Q3 2020. This means that as the world is slowly recovering and adjusting to the “new normal”, the demand for subleased office spaces is also increasing.
Rather than passively waiting out for the pandemic to run its course, employers are finding lucrative ways to turn their empty real estate into something profitable through subleasing. Here are the current trends with office subleasing:
Since gyms are closed, it’s tempting to just sit down on a sofa and watch Netflix while munching on junk food. Plus, you may not have enough space or budget to buy fitness equipment in your homes. However, there’s no better time to be more health-conscious than right now when people with comorbidities (such as obesity) are more likely to have severe COVID-19 symptoms.
Much like moving on with our livelihood, taking care of our health by getting physically active should be done regularly. Companies like Silofit found a way to create an Airbnb-like system that connects fitness professionals to clients. Through app bookings, Silofit provides a private space for people to continue training while minimizing social interaction.
Sometimes, working at home is unbearable especially when your dog barks at the slightest sound. Or when neighbors are getting rowdy outside. When work and personal boundaries become blurry, people need to find a cozy place away from home to collaborate and brainstorm ideas together.
People that don’t work for the same company can come in groups or individuals and work on each of their projects. A coworking space is like a cafe or a coffee shop but with office resources such as papers, printers, WiFi, conference rooms, etc. Offices could use their extra space and amenities by subleasing them to companies like LiquidSpace. People can comfortably work anywhere by just booking the nearest office space through LiquidSpace.
Although big social gatherings have to be minimized, it doesn’t have to be a reason not to celebrate special occasions with family. Intimate gatherings with close friends and family are the way nowadays to celebrate weddings, birthdays, and other life milestones. Spacious and open designs of office spaces, especially those located in high-rise buildings with beautiful rooftop views, can offer a cozy and warm place for people to enjoy.
This idea does not only apply to celebrations, but also small group gatherings and local meet-ups. People sharing the same hobbies, such as a speech club or a book club, can regularly meet up in repurposed office spaces.
Self-storage facilities are a profitable investment despite the pandemic because of the 4Ds — divorce, dislocation, death, and downsizing. Except for divorce, all of which were heightened up because of the pandemic. People need a storage space to store all their belongings during huge life changes.
Office spaces can be rented out for storage purposes. CubeSmart is a company that rents out storage spaces of varying sizes and special uses. Clients can use the spaces to store their personal belongings. Small businesses, especially in the e-commerce industry, can use them as small to large warehouse spaces. It serves a promising market especially when the pandemic is boosting the e-commerce industry.
Art Studios and Retail Spaces
Moving from one place to another for film shooting locations or product and supply chain deliveries is more challenging because of travel requirements. Thanks to technology, media companies are getting more creative in creating content. For example, Storefront is a company that rents out spaces for retail pop-up shops or studios for the multimedia industry such as photography studios, private art exhibits, showrooms, and commercial shoots. All of which can be done in repurposed office spaces.
The traditional way that we know of growing vegetables and crops are vast lands, sunlight, rich soil, and water. But the modern way makes use of technology to mimic the favorable environmental conditions through urban vertical farming. Urban vertical farming is a farm within buildings despite the limited floor area and the indoor environment. Indoor farming is a combination of green real estate and green technology for sustainable food production.
The picture above shows the indoor farm in Pasona Urban Farm — the largest farm-to-table project in an office building located in Tokyo, Japan. It’s like hitting 2 birds with 1 stone — office spaces have a better working ambiance and local communities have an increased healthy food supply. The facility grows about 200 species of crops, vegetables, and rice that are served in the building’s cafeteria.
Compared to other office subleasing ideas, this is more of a longer-term lease contract that calls for major renovations. But the end product is definitely worth it.
If history has taught us anything, it’s that recessions occur periodically. And every time, the economy always bounces back up. I think so is true for the real estate industry especially the office sector. Humans are social beings — if we’re given the choice, we would all want to go back to our collaborative ways. But in the meantime, we have to make do.
Unused empty office spaces are liabilities to the company only if they keep it that way. Repurpose office spaces into gyms, coworking spaces, private event venues, storage, art studios, retail booths, and indoor farms. Subleasing office spaces for these more suitable activities during the pandemic can turn losses to profit.
Because with new COVID variants popping up, we still don’t know how long this recession will last. Only time will tell how much longer we have to ride this one out. So if losses are still manageable, try and turn the situation around.
Originally written by me on Medium.