Why Landlord And Tenant Competition Is Reaching Dot-Com Levels
In 128 core markets, an odd thing is happening, according to a new Avison Young report: Sublease space is becoming competitive with direct-lease space among office and R&D-oriented buildings.
Avison Young research guru Tucker White tells us in the short term, the competition between landlords and tenants will be escalated to a level not seen since the dot-com bubble burst in the early 2000s. The difference lies with what kind of companies are competing. "Back then we had younger tech companies with limited resources trying to attract tenants to their space."
Now, with an excess of 1.3M SF, there's an abundance of tenants offering some of the best space in the market on a sublease basis, Tucker notes. With over 2.5M SF of office space requirement in the submarket—Burlington, Lexington, Lincoln, Waltham and Weston—not only will competition heat up among tenants and landlords, but also conflict will arise among firms representing landlords and sub-landlords for the same building.
Tucker also suggests that spec office construction in the market may be somewhat limited, as several large blocks of sublet space will compete with direct space over the near term. “Tenants that can be more flexible with their layout and lease term commitment should see lower rates compared to direct space.”
To reinforce the lack of construction moving forward, large banks such as Deutsche Bank are already saying commercial real estate construction has hit its peak.
