Space available: vacant space drives the sublease market.

• Author: Hess, Teresa Browning
• Position: Commercial Real estate

NEWS OF CORPORATE reorganizations, scale-backs and closures has become routine in the headlines as companies throughout the country struggle to remain profitable in a "" strained economy. The Wasatch Front, like "" other metropolitan areas has experienced a wave of closures by national and international corporations intent on restructuring and streamlining their operations.

One side effect of corporate Americas "lean and mean" philosophy has ha a particular impact on the commercial real estate industry in Utah. The availability of sublease space in facilities vacated by paying tenants has become a major influence in the marketplace, exerting a downward pressure on rents and cutting into the profits of may building owners.

The vast majority of available sublease space along the Wasatch Front today was once occupied by national credit tenants who are still honoring their lease agreements. In an effort to offset their expenditures on shuttered facilities, most seek sublessees willing to occupy the space for the remaining term. Since even below-market rents are better than none, sublessors are offering a treasure trove of incentives, deeply discounted lease rates, free rent, generous tenant improvement allowances and, in some cases, even office and/or telecommunications equipment.

For many landlords, who have seen the phenomenon surge into a major market force over the past two years, the prevalence of sublease space is the equivalent of competition with an ongoing fire sale. While subleases have historically played a minor role in overall market conditions, the sheer volume of space available today has exerted an extraordinary influence on the entire commercial real estate arena.

According to information provided by Colliers Commerce CRG, 879,000 square feet of office space was available for sublease in December of 2002, accounting for 3.42 percent of overall market vacancy Although tenants have been responsive to the attractive deals available, and close to a half-million square feet of sublease space was either absorbed or returned to landlords over the course of 2002, the amount available at year's end exceeded figures posted in 2001 by 60,000 square feet.

"Sublessors have had an undeniable impact on the office market," observes Peggy Garcia, an office specialist with Prime Commercial Inc. "They are much more aggressive in deal-making because they have a completely different motivation than traditional landlords. They're willing to...