The amount of office space available for sublease on Long Island has increased at least 22% over the past year, as more workers operate remotely and companies try to recoup some of what they spend on now-unused outposts.
Sublease opportunities tend to grow during economic downturns, brokers said. With more office options on the market, the quest to fill workspaces becomes more competitive for owners and property managers. Prices have not fallen yet, they said, but are likely to drop if more firms attempt to sublet their space.
"Tenants that can give up space ... want to get it off their books in 2020, so they start fresh in 2021," said Brian Lee, executive managing director of the real estate firm Newmark, Knight and Frank's Long Island office. "Every recessionary type of cycle creates the advent of sublease space."
Across Long Island, 752,000 square feet of office space was available for sublet during the third quarter, which is a 52% increase from the 494,000 square feet listed during the third quarter of 2019, according to CoStar, an international commercial real estate analytics company. CoStar's figures include about 150,000 square feet that Altice once occupied and has been renting to subletters for several years, brokers and the cable company said. When Altice's location is excluded, space for sublease has grown 22% over the past year.
The amount of available workspace is likely larger than what is captured by CoStar data, given the growth in unused office space that has not been formally advertised, Lee said.
RGI Home, which helps retailers source storage and organization products, listed roughly 10,000 square feet in its Lake Success office in October, president and CEO Allan Spivack said. With its showroom unused, Spivack said it was a good time to "right size" RGI Home's footprint. RGI Home is looking to sublease its space for the five years left on its lease, then move into a smaller office and assess the viability of a smaller showroom.
"It will allow us to mitigate some of the costs," said Spivack. But "the need to have showrooms where people can sort of live and breathe the product — I think will always be there."
Going through the hassle of subleasing only makes sense when companies have decided they will have excess space for a significant period of time, said Jonathan Miller, president of the Manhattan appraisal firm Miller Samuel.
"We're at peak Zoom," Miller said, referencing how widespread telecommuting has become during the pandemic. While there will be some return to office space, "we're not going back to where we were, so there’s this unknown that's being hashed out," he said.
Newsday is seeking to sublease 40,000 square feet, or just under one-third of its footprint, spokeswoman Kim Como said.
"Given the current climate, and with most of our staff working remotely, Newsday is looking into subletting the third floor of 8 Corporate Center Drive" in Melville, Como said in an email. "Our business has continued to operate smoothly during the pandemic."
The pandemic does not appear to be a factor in some of the larger workspaces put on the market. Dealertrack, which sells technology to auto dealers, began marketing about 40,000 square feet in its North Hills headquarters this June. A spokesperson said efforts to use space efficiently, not COVID-19, influenced its plans at the 233,000-square-foot hub opened in 2017.
Resideo, a security company spun out from Honeywell, began offering about 19,000 square feet for sublease in Melville last month, said Cushman & Wakefield's Long Island executive director Phil D'Avanzo, who is representing the landlord, Lone Star Funds. Resideo did not respond when asked whether COVID-19 impacted its plans, but D'Avanzo said the move was planned before the pandemic.
The increase in available space means owners and property managers will face a more competitive environment, said Ari Ginsberg, professor of entrepreneurship and management at New York University's Stern School of Business. Several evolving factors make it difficult to assess how companies' demand for office space is changing, including when a vaccine will be widely available and how popular telecommuting remains. "How much of that available subleasing space actually gets leased in the next month or two is unclear," he said.
Landlords are already on alert that they may need to sweeten deals to sign tenants. Onyx, a New Jersey-based real estate firm, may have to offer prospective tenants a larger budget for refurbishing about 25,000 square feet of raw space the firm will soon have available at Jericho Plaza, according to Adam Karafiol, senior vice president of leasing at Onyx Equities.
"I’m buckling my seat belt," said Karafiol. "The deals I do post-COVID are going to be more aggressive, not only because of the market conditions and because people are a little more comfortable at home … I’m competing with space that wasn’t on the market before."
An earlier version of this story inaccurately described the size of office space Resideo intends to sublease.
Long Island office market
Total space available for lease
Q3 2020: 9.5 million square feet
Q3 2019: 8 million square feet
Sublease space available
Q3 2020: 752,000 square feet
Q3 2019: 494,000 square feet
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