2018 Economic Forecast: Real estate & construction
Things may be looking up in real estate and construction for 2018, depending on which county you’re sitting in. Here are things to watch for in the new year:
A mood of renewal
Functionally obsolete city buildings are being razed or repurposed, like 1300 Market, the Class B bank building that Cannon Patel transformed into a Courtyard Marriott.
“We’re so close to critical mass in the City of Wilmington, if not already there, it is a different place today than it was three years ago,” said Rick Kingery, vice president of Colliers International.
Much of that is thanks to Buccini/Pollin, the developers who have transformed dead space and defunct storefronts into homes for young techies, who will, in turn, draw labor-chasing employers to the city to snap up the tech talent.
“They should erect a statue to those two guys,” Kingery said of the Buccini/Pollin founders.
And, Buccini/Pollin’s historically sensitive do-over of the iconic 105-year-old Hotel du Pont is bringing a new excitement downtown. One example: Insiders are buzzing about plans to restore the old-time connection between the Dupont Theatre and the Brandywine Room so theater-goers can enter the restaurant through a long-closed elegant back entrance.
Nonprofits are changing things up in the city’s poorer neighborhoods. The Ministry of Caring and The Central Baptist Community Development Corp. have made major improvements on the city’s East Side.
Zip Code Wilmington’s successful effort to turn uneducated young people into efficient coders is a move in the right direction.
With pro-business Mayor Mike Purzycki, big changes on the river and the GOP tax package, investors who have been sitting on the sidelines might jump in, barring another lunchtime shootout at like the one at Seventh and Tatnall in November.
Kingery’s prediction for the city market: “When you get it fully right-sized, then you’ll have growth and then you’ll see new buildings delivered.”
Office vacancies are still high – but not as high
The office vacancy rate for downtown Wilmington was 19.1 percent in the fourth quarter, according to CBRE. That is actually down, compared to the fourth quarter of 2016.
The overall office vacancy rate for northern Delaware was 17.6 percent in the fourth quarter, down just a tad from 17.8 percent a year earlier.
There was an uptick in vacancies in the Wilmington suburbs, according to CBRE, but it was mostly driven by Corporation Service Co.’s move to its own new headquarters building on Little Falls Road.
Working from home and working from phones continues to affect space decisions.
“As computers get smaller and more employees work remotely, companies don’t need as much space as they used to,” said Lorraine Sheldon, an NAI Emory Hill commercial agent. That leaves empty corridors in Wilmington’s Class B buildings.
Philip J. McGinnis of Dover’s McGinnis Commercial Real Estate said downsizing and lack of expansion are adding to the problem in Kent County. “You’ve got companies of six or eight people going down to three or four people and you’ve got companies merging, so you don’t need as much space.”
The upside: Leases done in 2008 are expiring, so companies are re-upping, and so many jobs were shed between worst-case-scenario years 2008 to 2010 that there’s some regrowth in staffing happening, Kingery said.
Housing improves slowly
In the housing market, the supply of existing homes on the market was 4.6 months in November, well below the 10-month supply in mid-2010.
The state continued to be ranked first or second among states for foreclosures most periods last year, though, due to the backlog of bank-owned properties from the recession.
The latest Realty Trac figures show 1 out of every 1,321 homes in Sussex County is a foreclosure. In Kent County, it’s a much higher 1 out every 758, and, in New Castle County, it’s one out of 875. The national average is one out of every 2,099.
With so many foreclosures clogging the market, it’s no surprise that the median sale price for a Delaware home was $225,000 in November, down from $229,900 in November of 2016.
How much the tax bill will affect home sales is still up in the air. Of the 245,000 owner-occupied houses in the state, 64 percent are mortgaged, and 6.4 percent have a mortgage over $500,000.
Severe labor shortages are affecting the apartment and new housing markets.
Big changes on the horizon
Homegrown Harvey Hanna & Associates is rehabbing and repurposing 3 million square feet of industrial space in the old GM plant in Newport. The 142-acre plant once employed more than 5,000 people.
Harvey Hanna created about 1,000 jobs at its Twin Spans Business Park in New Castle, which was a similar scenario. Harvey Hanna remediated the brownfield site of the defunct Chicago Bridge and Iron Co. there and filled it with national and regional tenants.
Harvey Hanna execs, known for repurposing defunct industrial sites, estimate the auto plant site could provide 2,000 to 3,000 new jobs, counting construction work.
Company President T.J. Hanna said he is hoping for the manufacturing tenants for the industrially zoned plant, but his company will consider retail tenants, assembly plants, warehouses or distribution companies. He said it could be up to eight years before a tenant is up and running.
“For the first time in years, we’re seeing industrial buildings being bought,” Sheldon said.