Shadow space

CRE shadow space

Shadow space, also known as “phantom space”, is leased space that is not being used by the tenant.

General points:

  • The space may be “in the market” and available to tenants as a sub-leasing opportunity (alternatively it may be held back by CRE professionals as “private stock”).
  • The property fund is generally still receiving rental from the tenant for this occupied area.

Shadow space is difficult to measure because it is not officially marketed or is generally hard to track in industry databases. For this reason it is often excluded from vacancy metrics.

The three drivers:

  1. Unused space that a tenant is leasing in the expectation of future growth, or
  2. Space that a tenant projected would be occupied on signing of a lease. A period of time later the tenant has taken occupation, but the company growth has not materialised, and the space is not required, or
  3. Space that was previously occupied but is no longer used as a result of downsizing the company’s workforce.

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