Seventy-six percent on paper, fifty-eight in the bank
At the defaults you pay $38 a foot on 1,800 square feet with 30 months to run, and expect to place it at $29. Divide one by the other and the recovery looks like 76.3 percent. Run the months and it is 58 percent. The 18.3 points in between are not an accounting subtlety; they are $41,000 of real money over the term.
Four things take them. Four months of marketing and negotiation at full cost with nothing coming in. Two months of free rent to get the deal done. A broker fee on the whole term paid at the front. And nine thousand dollars of demising, keys and cleaning before anyone can use the space separately. None of those appear in the rate ratio and all of them appear on the bank statement.
The escalation gap widens on its own
Your lease steps up three percent every anniversary. A short sublicence usually does not step at all. In month one you are short $9 a foot a year; by the third year of the term you are short more than $11, without anything having changed or anyone having renegotiated. On a longer tail this is the largest single line, and it is the one people are most surprised by, because a lease escalation feels like a background condition rather than a cost of the sublet.
Set the sublicence escalation to match your own and watch the recovery figure move. Whether you can actually get an escalating sublicence is a market question, not an arithmetic one, but it is worth knowing what asking for it is worth before you decide not to bother.
Vacancy at the front is the expensive kind
| Change | Effect on the carry at the defaults |
|---|---|
| One more month empty | You pay a full month and receive one month less |
| One more month of free rent | You lose the base rent but keep the expense pass-through |
| A dollar off the rate | Spread thinly over the paying months only |
The order matters. A month of vacancy costs more than a dollar off the asking rate, and holding out for a better number while the space sits empty is usually the more expensive of the two mistakes. Move the vacancy field and the asking rate field one at a time and the trade is visible in the recovery percentage.
Before the arithmetic, the document
Everything above is arithmetic on numbers you supply, and it deliberately answers none of the questions that decide whether any of it is possible. Whether the lease permits a sublet or a licence, whether consent can be refused and on what grounds, whether you stay liable if the subtenant stops paying, whether your insurer needs to know, and whether the arrangement changes anything about the building are questions for your lease, your landlord, your insurer and a lawyer. Get those answered first; the spreadsheet is the easy part.
If what you are placing is desks rather than a demised suite, the hot desk ratio calculator covers how many people a desk pool supports and the load factor calculator gives the cost of a seat you would be recovering. Once somebody else is in the space, the cost allocation calculator divides the utility bills between you. For the physical side of separating a floor, the bay demising calculator works out what the dividing walls cost in frontage and in money.
Questions people ask
Why is my recovery so much worse than the rate difference suggests?
Because the rate ratio compares two rates and ignores everything that happens in time. The months the space sits empty are paid in full with nothing coming back, free rent is given away at the start, the broker fee lands up front on the whole term, and any escalation in your own rent that the sublicence does not match widens the gap every anniversary. At the defaults the ratio says 76.3 percent and the term arithmetic says 58. The second number is the one that leaves your account. It does not always run that way: where the sublicence rate is very low but you pass the operating expenses on in full, the pass-through can carry the real recovery above the ratio, because the ratio only looks at base rent. Run your own numbers rather than assuming the direction.
Should I hold out for a better rate or take a lower one sooner?
Run it both ways on this page, because the answer depends on your own numbers and it frequently goes against instinct. A month of vacancy costs a whole month of rent and expenses; a dollar off the rate costs a dollar spread across the paying months only. On a long remaining term the rate matters more, on a short one the vacancy dominates, and the crossover is usually earlier than people expect. The figure this page cannot supply is how much sooner a lower rate actually finds a taker, which is a market judgement.
What should go in the fit-out field?
Everything you spend once to make the space separately usable, whether or not it feels like construction. A dividing wall and a separate entry if the space is not already demised, locks and access control, furniture if you are letting it furnished, cleaning and repainting, signage, and the legal cost of obtaining consent and drafting the agreement. That last item catches people out because it is not a building cost, and on a small sublet it can be a large fraction of the total.
Am I allowed to sublet at all?
This page cannot tell you and does not try. Whether your lease permits a sublease or a licence, whether landlord consent is required, whether it may be withheld and on what grounds, whether you remain liable if the subtenant defaults, and whether your insurance covers somebody else occupying the space are all decided by your specific documents and by where you are. Read the lease and take it to a lawyer before you market anything. The arithmetic here is only useful once that answer is yes.
Does this work for renting out part of a workshop or a studio?
The arithmetic does, as long as you treat the numbers honestly. Enter the area actually coming off your own use, put the cost of making it separable into fit-out, and be realistic about the admin figure, which is higher for a shared workshop than for a demised office because you are managing a relationship rather than collecting a rent. What the arithmetic does not touch is that sharing a workshop with equipment raises supervision and insurance questions that have nothing to do with money, and those belong with your insurer before anyone else is in the building.