- Office vacancy in Wilmington’s central business district is the highest it’s been since the start of the pandemic.
- Companies that switched to remote or hybrid work structures are shedding office space where they can or seeking new spaces geared toward collaboration.
- Owners of older and lower-tier office buildings are having to decide whether their properties are best used as something else.
The COVID-19 pandemic and the restrictions it prompted promised many “new normals” for everyday life, but three years later most rhythms have returned to their normal beats.
A notable exception: office work.
It appears there is no going back to the five-day cubicle work week. The pandemic forced most desk workers to operate from kitchen tables and home offices. They’ve since been asked or told to return to the office, but few are required to go every day.
In addition to fundamentally changing how thousands of Delawareans work, there are implications for owners of office buildings and the downtowns, like Wilmington, that office wage taxes bolster.
Here are five trends playing out in Wilmington’s office market, according to market reports and industry observers.
PREVIOUS REPORTING: Heading back to the office? See how 5 Delaware employers are reimagining the workplace.
Remote work has weakened Wilmington’s office market
Over the last three years, companies have left office space or downsized while transitioning to remote work or a mix of remote and in-person work.
It’s left office building owners with more available space and a relative few companies seeking that space.
According to Newmark, a commercial real estate brokerage that tracks the Wilmington market, 27.9% of offices in Wilmington’s central business district were vacant in the first quarter of 2023. It’s the highest vacancy rate for downtown since the pandemic began.
Asking rent in the overall Wilmington market averaged $25.91 per square foot in the first quarter, down from $26.25 a year ago.
The forecast is “murky,” according to Newmark’s report. It’s unclear how much space could become available in the coming years as some companies wait out existing leases. Others are attempting to sublease space they have under contract and no longer need, but it’s an arduous task given the market conditions.
Companies are still seeking space, but less of it
Because many businesses have settled on a hybrid structure, they aren’t abandoning offices entirely. Some that shed space before are now returning to the market, finding they want more in-person collaborative days, said John Kaczowka, senior vice president of real estate company CBRE.
“We’re going to see, in my mind, a surge of companies that are going to start looking,” Kaczowka said. “The trend is going to be a benefit to our marketplace here.”
The spaces they’re seeking are different. Many companies are looking for a smaller footprint with more areas to collaborate. Providing a dedicated workstation to every employee, especially those there only a few days a week, is less of a priority.
Wills Elliman, senior managing director of Newmark’s Wilmington office, has been tasked with trying to sublease Comcast’s 150,000-square-foot office near Newark. Comcast closed the building, which it had used as a call center with about 600 employees, in early 2022 less than four years after it signed a 10-year lease for the space.
Few businesses are seeking a building that large. Elliman said it would be difficult to lease to multiple tenants because the floor plate, the amount of leasable space on each floor, is still very large at around 50,000 square feet. Plus, an upgraded amenity space that includes a Starbucks, fitness center and game room can’t be divided among the tenants.
If it can’t be subleased, Comcast is “going to have to eat it,” Elliman said.
Newer buildings are faring better than older ones
So where are those companies going? Newer buildings are doing a better job attracting them than older ones.
According to Newmark, the greater Wilmington market recorded a 22% vacancy rate for buildings 20 years and older and a 13.7% vacancy rate for buildings constructed within the past 20 years. The younger buildings account for just 13.2% of office inventory, sending demand for those spaces up.
Kaczowka said the fact there are two office projects being built speculatively, meaning before they have tenants lined up, is a “good sign” for Delaware. Those projects are Delle Donne & Associates’ office tower at Avenue North on Concord Pike in Fairfax and Pettinaro’s Walkers Mill building in Barley Mill off Lancaster Pike in Greenville.
“The developers have two great sites in high demand and are willing to invest,” Kaczowka said. “To them, it’s probably a low-risk deal.”
Office space is assigned a class A, class B or class C rating. Class A is the highest quality. Both of the speculative builds fit that class.
The Avenue North tower will be about 100,000 square feet. By going up, the building will have a relatively small floor plate that can accommodate rising, but smaller companies. It will have around 17 to 20 tenants, with each occupying between 5,000 and 6,000 square feet. If companies have money to spend, Avenue North will be the place to be, Elliman said.
“Everything Ernie Delle Donne touches turns to gold,” he said.
Jamie Vari, executive vice president of Jones Lang LaSalle Inc., the group leasing the tower previously told Delaware Online/The News Journal he thinks it will set a “new benchmark of quality for office buildings.”
Pettinaro has plans for two class A office buildings as part of its Barley Mill development that is already home to Delaware’s first Wegmans, a small retail center and townhomes. At three stories tall and just over 100,000 square feet, the Walkers Mill building is nearing the end of construction.
In addition to providing modern, new spaces, both projects factor into a “live-work-play” style of mixed-use development that companies can pitch to prospective employees.
“It’s going to be a good way for companies to have their headquarters here and be able to attract and retain talent,” Vari said.
Some companies are investing in office space renovations to draw employees back
Along a similar line, some companies are investing in renovating their existing office space.
JPMorgan Chase in January announced plans for a multimillion-dollar renovation at its corporate centers in Wilmington and near Newark. The renovations will introduce collaborative spaces, standing desks, improved lighting and higher-quality tools that will make the aging office floors look more like a tech company.
Barclays renovated its Riverfront office during the pandemic to incorporate more collaborative areas. It, too, got rid of its cubicles in favor of standing desks with wide monitors and sofas and armchairs.
“There’s lots of work that can be done, that we’ve proven we can do from home,” Denny Nealon, CEO of Barclays US Consumer Bank previously told Delaware Online/The News Journal. “But the speed at which you can move when you don’t have to schedule a call or you can just quickly talk to someone down the hall – the impromptu kind of engagements – I do think it speeds up decision-making and ideation.”
Elliman described an “amenity war” unfolding downtown. One of the highlights has been the DE.CO Food Hall opened by the Buccini/Pollin Group on the ground floor of the DuPont building in 2019. TSG Hospitality followed with the Chancery Food Market in the former Hercules building in December. They make the buildings they’re in and those around them more attractive to employers, Elliman said.
PREVIOUS REPORTING: DE.CO and The Chancery Market face off. We size up Wilmington’s twin major food halls.
As far as the Class B and C office buildings that aren’t getting invested in, Elliman estimates 30% of them won’t last as offices. They’ll be converted to another use or knocked down.
Office space is being converted to ‘right-size’ the market
The shakeout Elliman predicted is already starting to unfold.
In the central business district, the 11-story office tower at 1220 N. Market St. reopened as a Staybridge Suites last year. Four years earlier, the nearby Beneficial Building was converted to a Residence Inn.
A Pennsylvania firm finished converting the 14-story office tower at 901 N. Market St. to apartments earlier this year. The city has also approved a plan to convert the high-rise at 913 N. Market St.
Following the success of its apartment project at the DuPont building, Buccini/Pollin Group is converting a portion of the Nemours building to 355 luxury apartments. The change is part of a rebranding of its properties that will create the “Market West” district, a combination of offices, apartments and restaurants at the DuPont, Nemours and Brandywine buildings.
“I think it speaks to the vibrancy of what’s happening in the city of Wilmington,” BPG Co-President Chris Buccini said.
The trend has stepped outside the city too. In Newark, Lang Development is converting a five-story office building on Creek View Road to apartments. It is building a smaller, three-story office building down the road.
Office conversions present challenges to developers, the greatest being how to get natural light to the inner parts of the often long office floors. But many developers are happy to trade their low-leased office building for that task.
“What they’re trying to do is take space that is maybe obsolete-type office space because apartment demand is really, really strong,” Kaczowka said.
Like knowing what stores, restaurants and developments are coming and going in Delaware? Join our Facebook group What’s Going There in Delaware and subscribe to our What’s Going There in Delaware newsletter.
Contact Brandon Holveck at bholveck@delawareonline.com. Follow him on Twitter @holveck_brandon.
