Is Sub-Leasing a Solution for Your Office Space?

New York businesses are often tempted to sublease space for their operations, mostly because it’s cheaper than a standard lease.
But when weighing the two alternatives, tenants often find there is plenty that is subpar about subleasing, brokers say.
First the positives: If you’re looking to sublease space, say, in midtown Manhattan, it’s currently around 10% cheaper than so-called “direct” office leases, where you deal with the landlord straightaway.
“The biggest incentive is price, and that’s why people do it,” says Benjamin Friedland, a commercial real estate broker at CB Richard Ellis.
Midtown office rents currently average around $51 a square foot. But for sublease space on the market, rent is closer to $46 a square foot.
Not a huge difference at first glance, but it adds up.  For a 1,000-square-foot office, which could house half a dozen workers, that comes down to a $5,000-a-year savings ($51,000 versus $46,000).
Another positive is that you’re usually getting space that is already set up as an office, with basics like carpeting and phone lines already in place.
The main negative is that you have fewer rights when you sublet space. While the average term for a direct lease is approximately seven years, subleases are typically shorter. There is usually little negotiating about the length of a sublease, largely because the company subletting the space needs to do so for a specific period of time. The only exception to this is if a company takes more space than it need and subleases out a portion so that it can manage its growth. Many large law firms and hedge funds do this.
Also, if problems arise, you have no direct relationship with the landlord — you  have to go through the sublandlord (the company that is doing the subleasing).
Many of the most desirable terms of a lease are often not passed along to the subtenant. These include the right to extend the lease, to expand in a building, or to sublease to another tenant. By contrast, when you do a direct deal, you have a lease specifically tailored to your company.
In addition, if the initial tenant goes bankrupt and the lease falls apart, a company that is subletting might have to move out. Check out the financials of a company you are leasing from — brokers will normally perform this duty for you.
The bottom line: Subleasing is a good alternative for companies that are most interested in:

a) getting into a building quickly.
b) limiting their up-front capital expenditure.
c) having a lower base rent.
d) doing a short-term deal that a direct landlord would not entertain.