Shadow Space: What is it and What does it Indicate?
One definition of “shadow” is as follows: a reference to proximity, ominous oppressiveness, or sadness and gloom.
It is a common misconception that the term “vacant space” or “vacancy rate” is an indicator of all the space available in a given market or property. “Vacancy” simply refers to space that is not leased. However, “available space” or “availability rate” is a more accurate indicator of all the space available or will be available soon. The difference between vacant and available space is often referred to as “shadow space.” Shadow space is space that is currently occupied but is still being marketed for lease. The tenant does not have to physically occupy the space, they simply must be paying rent and have a lease on the space. A recent example of this is marked by Dollar Bank having announced they will be moving from Gateway Center to 20 Stanwix Street. The owner of Gateway Center knows of this upcoming vacancy and of its availability in the future, i.e. “shadow space.” This is different than sublease space in that shadow space can be directly marketed by the landlord.
At the end of Q3 2020 there was 4,402,254 square feet (SF) of available space either for lease or sublease in Pittsburgh’s Central Business District (“CBD”). Of this square footage, 3,731,808 SF is vacant. The difference of 670,446 SF is shadow space.
The amount of shadow space can be an indicator of economic conditions. Similar to sublease space, if there is more shadow space available, it is a sign that current tenants do not plan on renewing their leases or are downsizing. Typically, this is due either to a reduction in business or a downsized workforce.
At the end of 2019, the CBD had 684,308 SF of shadow space available. The availability was significant and represented 16.8% of all the available space on the market. Yet, as COVID-19 emerged over the next six months, the amount increased by a staggering 32.3% to represent 19.9% of the available space at 905,231 SF.
Going forward, as the COVID-19 pandemic continues, more shadow space is expected to come onto the market. At the same time, some of this space will turn vacant. It is very hard to predict or track shadow space because, by definition, the space is occupied. Just like any other market indicator or statistic, the variables are very fluid. Availability numbers are not to be confused or deceived by vacancy statistics. The true story lies in a vital combination of simple vacancy rates and the often overlooked yet very critical shadow space.