Ernest Hemingway’s version of the world’s shortest short story — For sale: baby shoes, never worn — can be refashioned to describe a troubling trend in Texas office markets: the sub-sublease.
For lease: office space, never used.
Across the Texas Triangle, and particularly in Dallas-Fort Worth, some companies are subleasing space that they themselves subleased in the last few years. As landlords’ saviors become sublessors, the trend bucks Texas’ return-to-office narrative, showing that landlords are struggling even in some of the country’s best-performing office markets.
It also complicates what landlords, brokers and industry observers have been saying for months about the flight to quality, that at least the nicest buildings were safe from the office downturn.
Case in point: in April, social media giant TikTok said it would sublease 126,000 square feet across six floors that it had planned to occupy at Cousins Properties’ 300 Colorado. The deal, signed hardly a year prior, checked all the boxes of a flight-to-quality rightsizing. 300 Colorado opened in 2021 with great river views and highly amenitized office space. TikTok is a blue-chip tech tenant. It would take over the building’s top six floors, a trophy office if there ever was one.
TikTok’s lease was actually a sublease — the firm had planned to take over space leased by Parsley Energy in 2018, back when companies were still taking entire 31-story offices. At the time, it was hailed as a sign that the office market was bottoming out. The Austin Business Journal wrote that the lease was “further signaling technology companies are still bullish on a return to the office in the near.” Not so fast.
Even as TikTok tells workers to come back to the office, it has decided to sublease its subleased space in 300 Colorado. While it’s one of the biggest firms to do so, it isn’t the only one. And the trend only seems to be picking up speed.
“It doesn’t look like it’s going away any time soon,” said Steve Triolet, a research and market forecasting executive at commercial real estate firm Partners.
Omni Logistics is looking to sublease its space at Cypress Waters, a pristine, 1,000-acre master-planned project in Las Colinas. Omni’s 40,000-square-foot office, and the rest of the development near Dallas, is top-shelf commercial property — newly built, energy-efficient, besieged with food trucks.
Still, less than a year after Omni picked up its offices at the complex from Caliber Home Loans, which was subleasing nearly 160,000 square feet, Omni is out.
Elsewhere in the DFW metroplex, Georgia-based information management firm nThrive put its 50,000-square-foot space at One Legacy West in Plano up for sublease. The firm had been subleasing the office from NTT Data since July 2020. The master lease runs through August 2028.
Trintech, a financial services firm headquartered in Plano, recently put 21,000 square feet of space at 5600 Granite Parkway up for sublease. Its office, spread across two floors, was originally leased by Fannie Mae, which subleased it to Trintech in 2021. Less than two years later, Trintech is (partially) out too.
The numbers may not tell the full story. Aggregate sublease space in Dallas-Fort Worth is actually down, Triolet says, but that is only because a handful of companies have pulled particularly large spaces off the market. The watchmaker Fossil had half of its 517,000-square-foot headquarters in Richardson up for sublease, but pulled it when it drew no takers. Reata Pharmaceuticals will now occupy its 20-story build-to-suit in Plano after putting it up for sublease last January.
The sub-sublease trend has not held to the same extent in Houston, where recovering energy markets have led to a reduction in sublease availability. But the Bayou City has its own office woes — the city’s commercial sales fell 74 percent last quarter compared to the year prior.
Tech, and as a result Austin, has not had the same fortunes as energy. In the second quarter of the year, Austin’s Class-A office availability leapt up six percent to over 23 percent, a result not only of subleases but also more supply coming online, according to a new report from Marcus & Millichap.
“Austin’s office segment had been a darling of the pandemic,” the report reads, but downturns in the tech industry in a tech-heavy office market are leading to “circumspect real estate needs.”
Read more
Commercial
Texas
Commercial sales fall 74% in Houston
Commercial
New York
Office subleases abound in North Dallas suburbs
Commercial
Houston
“It’s a terrible market” Related CEO blasts Houston real estate market