🔒Remote work trend leads to rise in office sublease availability

A move toward remote work has caused demand for office space to shrink dramatically in many markets, feeding into a notable rise in the amount of sublease space available in Greater Hartford and elsewhere.

However, opinions about the magnitude of the trend differ among local experts.

“If you look at downtown Hartford, there is almost half-a-million square feet of sublease and shadow space available,” said Joel M. Grieco, executive director of office brokerage in Cushman & Wakefield’s Hartford office. “That is dramatically higher than it has ever been.”

In the fourth quarter of 2019, about 0.7% of the 7.9 million square feet of office space in Hartford’s central business district was available for sublease, according to a report prepared by brokerage firm CBRE. By the fourth quarter of 2021, that had jumped to 3% and it reached 4.6% in the third quarter of 2022, according to CBRE.

Meanwhile, 6.3% of center-city Class A office space was being subleased at the end of the third quarter, while downtown’s overall office vacancy rate was 21%, with 25.3% of space being reported as available.

Many companies are seeking smaller, high-quality spaces with greater amenities, Grieco noted.

“The idea of a sublease wasn’t unusual, but it usually arose when one company fell on hard times or was acquired or shut an office,” Grieco said. “Today, it’s more widespread because the pandemic spared nobody. Every single company I know of has reevaluated their space.”

Rent pressure

Traditional forces are still behind some of the larger subleasing opportunities in the downtown Hartford market, experts said.

Michael Seidenfeld, chief operating officer of Shelbourne Global Solutions, Hartford’s largest landlord, noted M&T Bank has consolidated its space and recruited sublet tenants into Goodwin Square following its acquisition of People’s United Bank.

Law firm Day Pitney LLP signed a long-term sublease for 36,000 square feet and a direct lease for an additional 6,000 square feet in the 330,901-square-foot Class A Goodwin Square office tower, the Hartford Business Journal previously reported.

Day Pitney is relocating from 242 Trumbull St., a 304,413-square-foot Northland-owned office building that was put up for sale late last year amid significant vacancies. The building has been marketed as a “prime ... residential conversion” opportunity.

“Subleasing is not a good thing for a market because all of the tenants that M&T got to go into their space in Goodwin are tenants that were already in the downtown,” Seidenfeld said. “So, instead of expanding or remaining in their space in the downtown, they sublease at Goodwin, which was below-market terms and that’s not a good thing because it creates more vacancies in the downtown.”

Last year, Stanley Black & Decker shuttered its 23,000-square-foot advanced manufacturing innovation center in Constitution Plaza and put the space on the market for sublease.

Travelers Cos. has the most sublease space available, but the insurer had settled on plans to consolidate its leased office space downtown before the pandemic, said Chris Ostop, managing director of JLL Connecticut.

Travelers notified landlords in 2021 it would yield about 150,000 square feet of leased space in the Gold Building and State House Square to consolidate into the center-city headquarters buildings it owns and was in the process of renovating.

Even still, Ostop said he’s seen only a “minor uptick” in office market subleasing. And Seidenfeld said the post-pandemic rise of sublease offerings has “really slowed down” of late.

Subleases aren’t very attractive because most Hartford leases are relatively short term, Seidenfeld said. Companies don’t want to go through the expense of moving into a large space with a fraction of a short-term lease.

“You may have subleases come to the market, which is indicative of future vacancy when those terms end, but you are not seeing a lot of activity on those subleases,” Seidenfeld said. “You have more companies — Travelers being one — putting sublease space on the market but nobody is taking that expense.”

Grieco agreed that given the lack of Hartford County office market demand, “most subleases will sit fallow until the lease expires.”

However, sublease space inevitably competes with the direct space being offered by a building, resulting in further downward pressure on rents.

Seidenfeld said he anticipates a reversal as some companies begin to pull back on remote work and require employees to come to the office, at least part of the week. It’s something he’s starting to see in other markets outside Hartford.

“We expect there to be the same sort of boomerang effect in the next year or so,” Seidenfeld said. “Tenants are saying (work from home) is not as effective.”