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Downsizing South Florida businesses eager to sublease their space: With economy in the doldrums, businesses don't need room to grow
(South Florida Sun-Sentinel (KRT) Via Acquire Media NewsEdge) Sep. 5--The sputtering economy is causing businesses across South Florida to re-evaluate how much room they really need. And that likely will push the region's office vacancy rate to its highest level in five years.
Many companies, particularly those depending on the sluggish housing sector, are trying to reduce real estate costs, hoping to find replacement tenants to take over all or part of their leases.
A year ago, more than 1 percent of the 59 million square feet of offices in Broward and Palm Beach counties was available for sublease, according to Grubb & Ellis Co., a real estate firm in Boca Raton and Miami. That number now is approaching 2 1/2 percent and expected to keep climbing.
There hasn't been this much sublease space on the market since 2001, following the dot-com bust and the 9-11 terrorist attacks, said Jonathan Kingsley, managing director of Grubb & Ellis.
Large companies, such as thrift Washington Mutual, already are downsizing. Smaller firms are trying to hang on for now but could decide to cut costs soon because the business climate might not improve for a year or two, Kingsley said.
"It could get worse before it gets better," he said. "That's our fear. Payroll and real estate are some of the biggest costs for a company."
Rental rates increased quickly across the region during the past few years, real estate brokers say. Expenses, including insurance, property taxes and common-area maintenance, also remain costly.
"It's very difficult for some tenants to swallow," said Tivon Moffitt, broker at Grubb & Ellis.
A firm trying to sublease must continue paying for the entire space until it finds a replacement tenant. A landlord sometimes will terminate a lease and take back the space to market it at a higher rate, but that doesn't happen often in a down market, brokers say.
Washington Mutual hopes to find a tenant to take over 105,000 square feet on Yamato Road in Boca Raton. The Seattle-based thrift, hammered by the housing crisis like other lenders, announced in June that it was moving 175 back-office jobs from Boca Raton to San Antonio, a lower-cost market.
"It's part of our overall plan to reduce expenses and operate more efficiently," said Missy Latham, spokeswoman for Washington Mutual.
HomeBanc Mortgage Corp. is marketing 26,000 square feet in Deerfield Beach a year after the Atlanta-based lender announced it was getting out of the mortgage business.
In some cases, companies cite a change in business or strategy as the reason for reducing occupancy costs.
IBM is trying to unload half of its 160,000 square-foot office in Boca Raton because more employees are working from other locations, a spokesman said.
Meanwhile, DeVry University hopes to sublease all or part of a 93,000-square-foot building in Miramar because many students now are taking classes online, said Tom Capocefalo, DeVry's broker and managing director of the Studley real estate firm's Fort Lauderdale office.
In any event, office tenants looking for help face a daunting task in today's market, Capocefalo said. "We don't have a lot of businesses growing, gobbling that space up," he said.
Paul Owers can be reached at powers@sunsentinel.com or 561-243-6529.
To see more of The South Florida Sun-Sentinel or to subscribe to the newspaper, go to http://www.sun-sentinel.com/.
Copyright (c) 2008, South Florida Sun-Sentinel
Distributed by McClatchy-Tribune Information Services.
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