As you might guess, recently we've been much more active on both sides of subleasing transactions.  Almost every market search includes a sublease option or two, perhaps more.  If you are looking for space, should you bite?  They may not be worth the trouble.  Read on.

There are two primary reasons to sublease and potentially a few additional benefits.  First is price - In a soft market sublease space almost always trades below direct market rates.  The next is flexibility.  Subleases are often available for shorter-than-typical terms, or allow you to inherit finishes that would only be feasible with a longer term lease.

Additional advantages can include plug-and-play delivery that includes furniture and often communications and/or IT equipment, access to a building that might not otherwise have an ideal space, and negotiating leverage with a landlord.

Sound wonderful?  Well, it may not be as idyllic as it seems.  Each sublease space is like a size 9 shoe.  In brown.  As long as it fits, great.  However, if you need to modify it, both T.I. money and approval from the landlord might be much harder to come by.  The sublandlord is hurting for money already, so is not likely to provide a generous allowance and they don't want to wait for you to construct.  The master landlord may not be thrilled by your more intensive use and doesn't have to spend a nickle to earn the remaining rent due, so likely won't front any cash now in anticipation of a return years in the future.

And you know how your corporate attorneys like to spend a month haggling over the terms of the lease document?  Forget it.  Excepting rare instances, you probably need to live with the terms that the sub-landlord negotiated with the master landlord.  Options to renew or expand often are not transferable.  If the term is too short, the master landlord likely has little incentive to extend you now at today's rates, when they anticipate that the market may be better (for them) at lease expiration. 

Also remember that you are dealing with a amateur landlord, not a professional landlord.  Excepting firms with the most sophisticated corporate real estate plans, your sublandlord will be going through a learning curve.  Even the simplest of negotiations can take extraordinary amounts of time to resolve - because nobody in the company had ever considered these particular issues before.  Of course you are also at risk that the sublandlord could default or declare bankruptcy.  You also need to beware of the face rate offered in gross or full service leases, because your base year will likely be one that was set long before you take occupancy and may subject you to significant pass through charges starting the day you take possession.

So for all of these reasons, subleases really need to be marketed well below rates for comparable space that are direct with an institutional landlord.  Which brings us to another reason for avoiding subleases:  Companies tend to "upgrade" when subleasing, often taking a a class of space or finishes that would rent for rates far above what they would otherwise find willing to pay.  They justify this because of the bargain sublease rate.  Unfortunately, when the sublease expires, they'll have to either pay the higher market rates or incur the cost of moving.

Bargains can certainly be had, although there is no free lunch, so go in with your eyes open.