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What does South Florida’s sublease market say about tenants?

  • The chart above combines sublease vacancy rate and sublease net absorption to tell the story.
  • Starting on the left, the first major peak in sublease vacancy rate occurred in the period now known as the dot-com bubble: tenants who were confident about economic growth signed large footprints they ultimately weren’t able to fill. As a result, the share of vacant sublets more than doubled—especially in Ft. Lauderdale—as companies were forced to downsize or close.
  • The second peak occurred in the midst of the subprime mortgage crisis; here, too, sublease absorption was negative for more than two years. In terms of sublease vacancy, Miami and West Palm Beach were hit harder than Ft. Lauderdale.
  • In the wake of these bubbles (2002-2006; 2010-2013), sublease net absorption reversed upward rapidly—more quickly even than direct absorption—as tenants took advantage of lower asking rents and shorter lease terms, avoiding costly long-term lease commitments. Positive net absorption of sublet space led to a re-stabilization of the market in these post-crisis years.
  • Even though Ft. Lauderdale’s sublease vacancy rate hasn’t returned to pre-recession levels, sublease vacancy in all of South Florida is on the rise again. Based on these historical trends, sublease net absorption seems to dip first before major crisis events take place, meaning that sublease absorption could potentially be a harbinger of economic downturn. While there’s no need for concern yet, these measures explain the behavior of tenants throughout economic cycles and could play a cautionary role as companies consider their future growth and potential for expansion.

Source: JLL Research

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