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Commercial Real Estate Insider Only New Castle County News

Northern Delaware office vacancy rates stabilizes in Q4

Katie Tabeling
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DBT PHOTO BY JACOB OWENS

WILMINGTON — Vacancy rates appear to be stabilizing in the New Castle County office market in the final quarter of 2023 with Class A offices in downtown Wilmington and the broader Delaware market performing better than others in the region.

The overall vacancy rate dropped to an adjusted 20.9% for the final months of the year, according to a new quarterly report from Newmark, a major commercial real estate brokerage that closely follows the Delaware market. 

Regional reports from CBRE and Cushman & Wakefield estimated that the vacancy rate for Wilmington was slightly higher than that, with CBRE placing the vacancy rate at 32.5% and Cushman & Wakefield at 27.2%

But looking at the northern Delaware office market on whole, both firms were within five basis points of Newmark’s assessment. The quarter that ended in December 31 saw a net loss of  53,000 square feet of space, the highest since 2021, Newmark reported. That pushes the year end loss at 352,299 square feet.

Companies who have downsized, have done so at this point, but what effect “shadow space” — or where the rent is paid but the space isn’t used — won’t be fully felt until the long-term leases have ended, said Wills Elliman, senior managing director of Newmark’s Wilmington office.

“If you have an average of seven to 10 year lease, anything assigned in 2018 to 2020, the downsizing has already happened there. Landlords are still getting the cash flow, but it doesn’t mean the landlords will be when the lease actually expires,” Elliman said.

The rental rates have stabilized as well. The average rent rose 8 cents to $26.12 per square foot compared to the prior quarter, it is still relatively unchanged from the year. Still, it does mark an increase of 8 cents per square footage quarter over quarter.

JLL, a global real estate firm with an office in downtown Wilmington, found there was very little sublease activity compared to other parts of the Brandywine Valley. Downtown Wilmington had about 1% sublease activity. 

In particular, the Wilmington Riverfront boasts a sublease vacancy of under 1% —  lower than 80% of the submarkets within the Philadelphia Region, JLL reported.

The most notable lease during the final quarter of 2023 was Wilmington Savings Fund Society’s lease for 30,989 square feet in the Bellevue Park Corporate Center between Philadelphia Pike and Carr Road. That consolidation include the WSFS Wealth Center in the Greenville Center, located at 3801 Kennett Pike, that is home to Bryn Mawr Wealth and Capital Management offices; the Rockwood Office Park located at 501 Carr Road that is home to its trust office; and the Montchanin Corporate Center, located at 20 Montchanin Road, where Bryn Mawr Trust had an office.

Electrical construction firm Hatzel & Buehler leased an additional 16,875 square feet for its corporate headquarters off the U.S. Route 202. 

National law firm Fox Rothschild also signed a long-term lease for the eastern half of the 12th floor at 1201 N. Market Street, moving locations but not growing its footprint.

JLL noted in its analysis that law firms also drove the office market in 2023, with Grant & Eisenhofer renewing and extending its lease at 123 S. Justison Street. Quinn Emmanuel also signed an agreement for 5,400 square feet of space at 500 Delaware Avenue.

“As we enter into 2024, several large law firm requirements are on the watchlist as they make decisions for future office needs,” JLL Philadelphia Research Analyst Emily Friedman wrote. “Where they land and how much space they take will be a major factor for the volume of leasing downtown this year.”

Looking ahead, Friedman forecast that 2025 will be a major year when it comes to lease renewals. There is an estimated 400,000 square feet set to expire that year. 

“We can expect leasing volumes to pick up by the midpoint of 2024, with many tenants entering the market in search of quality space that may have been previously out of reach for downtown tenants,” she said.

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