Out of the shadows

When Hertz announced plans to relocate its global headquarters to Bonita Springs last month, it started scouting for temporary office space.

The car-rental giant found it in an unlikely spot: vacant space in nearby Naples that had already been leased to Fifth Third Bank. Hertz agreed to sublease the unused space from the bank.

The deal was unusual for several reasons, not least of which was the size of the space. At 40,000 square feet, the offices are nearly the size of a football field. That's a lot of space for Naples, a relatively small market compared with Tampa.

But brokers say sublease space is getting harder to find, even in large markets such as Tampa. Cheri O'Neal, senior vice president and branch manager of tenant-representation firm Studley in Tampa, says she could only find six sublease spaces available in the Westshore business district in a recent search for a client who needed 3,500 square feet. Tampa's Westshore business district is the state's largest office-space market with more than 17 million square feet, or enough to fill 295 football fields.

“We're getting much closer to a healthy state of equilibrium,” O'Neil says, though she and other brokers note that office rental rates have not yet started moving higher.

Although the terms of the Hertz sublease deal were undisclosed, sublease space is generally much less expensive. Brokers say sublease space can cost 30% to 50% less than direct space.

During the real estate downturn sublease space amplified the rental-rate collapse, further dragging down an already depressed office market. Some brokers and commercial real estate data firms track sublease space, but the full extent of it is generally unavailable. Brokers sometimes don't get as richly rewarded for leasing sublease space because the deals are usually short-term and many companies don't like to advertise that they have excess vacant space because it may reflect poorly on their space-management skills.

One firm that counts sublease space, CoStar Group, says vacant sublease space in the Tampa-St. Petersburg market fell 12% in the first quarter of this year compared with the fourth quarter of 2012, to 541,476 square feet. The Tampa Bay region's total office space measures 144 million square feet, including Sarasota.

In the Charlotte-Collier-Lee market, vacant sublease space was just 69,695 square feet in a market that measures more than 31 million square feet. “I don't think it's material in the overall market,” says Craig Timmins, principal with Investment Properties Corp. in Naples, the brokerage firm that represents Hertz.

Timmins says it's unusual for such a large block of sublease space to be available in Naples. “I don't know of any other 40,000-square-foot sublet,” he says.

Indeed, Dougall McCorkle, commercial associate with Premier Commercial in Naples, says the Fifth Third building where Hertz is moving is now fully leased. “It's the largest building in Naples,” says McCorkle, who represents the landlord, Olympus Ventures of Minneapolis.

“The office market, especially for Class A, is definitely improved,” says McCorkle. “There hasn't been a building built in four or five years and the absorption is closing the gap.”

Sublease space became widely available during the downturn when the financial-services industry was hit by the recession. “Our take is that space will disappear quickly,” says Scott Garlick with Cushman & Wakefield in Tampa. “There was a lot of bank sublease space on the market, but that's been all worked through.”

In downtown Tampa, for example, space is now hard to find, especially in the desirable trophy buildings such as 100 North Tampa. “There isn't hardly anything available that's greater than 5,000 square feet in the three downtown trophy buildings,” says Mia Jarrell, managing director of office services for Colliers International Tampa Bay. “The office market is definitely seeing a tightening,” she says.