Things to Consider When Subleasing Commercial Space

Subletting sections of your commercial office can be an excellent way to earn some extra income for your business and form strong new connections with complementary businesses. However, much like finding a good flatmate, there are some things to consider before sharing your space.

1) Are you allowed to sublease your commercial space?

The first consideration is the easiest one. You’ll need to consult your landlord or property manager to ensure that you’re able to sublet part of your office space before you start making plans to do so.

As long as you can get the necessary approvals from the primary landlord, you’re usually able to finalise a sublease relatively quickly. And, if you have extra commercial space that you are paying for and not using, it makes sense to secure the deal quickly. 

2) Setting a rental rate

To make commercial subleasing work for you, it needs to be financially worthwhile for your business. So, when setting your rental rate, consider your:

• running costs, including internet and equipment (printers, etc.)
• the current market average for similar spaces.

Be careful not to take advantage of your potential tenant. A quick online search is an easy to way to figure out: 

• If your pricing is fair
• How your inclusions stack up against other spaces
• How much competition you have in the area. 

Businesses or sole traders that sublease are often money conscious. And they’ll certainly be doing their own research. So, it pays (literally) for you to do the same.

Note: if you need to sublease space to make a commercial property viable for your business, then you could be in for a shock if the sub tenant moves out. In this case, your rental rate will jump up to the full cost in your agreement with the main landlord. 

3) Tenant stability

A commercial sublease is typically a legal contract between the sublessor and the sublessee. However, as the original leaseholder, you are bound by the terms of the initial leasing contract you signed with your landlord.

So, when assessing the suitability of a tenant, it is crucial you do your research. A sublease usually attracts small businesses or startups without the capital behind them to pay for a large space. This means they should be plenty of takers for your offering. 

However, take note of what they currently do and what they’re planning for their business to ensure they are stable and will be able to maintain rental payments.

4) Your commercial subleasing agreement

The commercial subleasing agreement you put in place could cover anything from:

• the length of the lease
• what modifications the subtenant is allowed to make to the fabric of the building
• noise regulations
• type of business/non-compete clauses
• parking
• access rules
• changing current use. 

It is also worth considering that commercial subleases are often short-term affairs. In most cases you can negotiate the remainder of your original lease, but nothing longer. Even if your original lease has an option to extend the tenancy, landlords normally reserve the right to cancel the lease and any subtenancy.

5) Complementary businesses

Opening your door to complementary businesses can result in new, mutually beneficial connections.

Perhaps you’re a marketing agency that needs video production, designers, or developers? Maybe you need an accountant? Whatever your motives, commercial subleasing is an opportunity to meet and work with a range of talented people across different industries and specialisations.

This mix of companies working alongside each other is one of the reasons for the rise of co-working, which sees growing businesses collaborate and assist each other within the same working space. 

Read more on how the rise of coworking is changing the commercial leasing landscape.

6) Consider your neighbours

Gwen Moran from Entrepreneur magazine notes that speaking with local businesses may be a quick and easy way to sublease your space. Should one of your neighbours need more room, then moving a few staff members next door is much less hassle than finding a bigger office.

While this solution is likely a temporary one, it can fill the gap while you search for a permanent tenant.

7) The limitations of a non-customised space

Spaces available for sublease are often offered as fully-furnished, plug and play opportunities, which is great for some businesses. But it’s unlikely that your workspace and layout will suit everyone. For this reason, you’ll need to find a flexible tenant that is willing to adapt their business to the existing space.

Due to the shortened lease term, it also does not make sense for the sublessor to offer incentives to the new tenant. Or for the new tenant to make any alterations or improvements to the space as there will be limited time to generate an ROI.

Thinking about commercial subleasing?

TGC will take the hassle out of finding a suitable tenant, who complements your business and has the financial grounds to sublease your space. Get in touch with our team today.