Pros and Cons of Subleasing Industrial Space in a Landlord’s Market
Pros of Subleasing Industrial Space
Flexible terms – it’s a landlord’s market and short-term leases are almost defunct. If you are wary of signing a five-year lease but you need space, a sublease could be just the ticket.
Easier negotiations -You may have an easier time negotiating with the original tenant who is looking to ease a financial burden.
Better rates – In northern Nevada, where we are seeing rental rates increasing each quarter, you might be able to take advantage of the original rate that was locked in (weather that was last year or three years ago).
Options down the road – You could obtain the first option to occupy the space once the original lease is up. However, it is best to hire a qualified real estate professional to determine whether or not you will have this option.
Shared space – This one falls into both categories, but on the plus side, if you are sharing a space with a like-minded business or someone in the same industry as you, you could benefit from referrals, collaboration and/or networking.
Shared equipment – If you end up subleasing a space from a similar business, there may be an opportunity to negotiate the use of specialized equipment, wracking, office equipment, etc.
Free amenities – You may not have to pay for wireless internet or elaborate security systems if these are already set up in a space that you will be sharing, which is something to discuss during negotiations.
Cons of Subleasing Industrial Space
Tenant improvements – If you need tenant improvements, it is unlikely that the sublessor will work with you (and the landlord certainly won’t), since they already have a signed contract with the original tenant who is legally responsible for paying them monthly rent regardless of your needs.
Subject to original lease – It’s this reason alone that makes hiring an industrial real estate professional a smart move. Before signing, you should thoroughly understand both leases.
Defaults – If your sublessor defaults, not only are you out of a space, but the penalties could trickle down to you (yet another reason to hire a professional to make sure your lease addresses this).
Limited rights – You gain none of the sublessor’s lease rights nor options.
There is much to consider before you start looking for space to sublease. But in a market where there are “no deals to be had,” this could be one route to cutting down your overhead and accessing a space for which you might not otherwise qualify. If you are interested in learning more about navigating the subleasing process here in northern Nevada, please reach out to Ali Forma at Miller Industrial Properties, Reno’s longest-running boutique industrial real estate firm.