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Commercial Real Estate Economic Development Insider Only New Castle County News

Northern Delaware office market cools to end 2022

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New Castle County Delaware office AmeriHealth Caritas Chrisitana Executive Campus

Medicaid plan manager AmeriHealth Caritas Delaware extended a nearly 23,000-square-foot lease in the Christiana Executive Campus at 220 Continental Drive near Newark in the largest quarterly deal. | DBT PHOTO BY JACOB OWENS

The office leasing market for New Castle County slowed in the fourth quarter of last year, only adding to the 2022’s net loss and a condition that it expected to continue in the short term, according to a new report from commercial real estate brokerage Newmark.

The New Castle County office market’s vacancy rate rose 10 basis points in the fourth quarter to 19% as nearly 13,000 net square feet was vacated in the period, according to Newmark, the national brokerage that most closely tracks the Delaware market.

The quarterly loss compounded to prior losses in a shaky commercial real estate market last year, ending with a net loss of about 166,000 square feet. Many landlords are repositioning office spaces, converting them to residential or hotel units, or investing heavily to attract tenants.

Despite the slow leasing of available space on the market, Newmark noted that the average asking rent of $26.07 per square foot was still about 56 cents higher than the five-year average. Those rents have held largely due to large concessions by landlords, while net effective rents have dropped significantly through the pandemic when accounting for the investments landlords have made to retain and attract tenants in a hybrid work environment.

“Rental rates will likely remain the same in 2023, as tenants will continue to expect significant improvement allowances for office customizations and free rent to offset their out-of-pocket costs,” wrote Jared Jacobs, the regional analyst for Newmark.

Meanwhile, the region’s sublease market, or tenants seeking another user for vacated space through the end of a lease, continues to be in flux. While sublease offers in Wilmington’s central business district reportedly fell last quarter, they were offset by new offers in the suburbs.

The largest lease transaction last quarter was Medicaid plan manager AmeriHealth Caritas Delaware extending a nearly 23,000-square-foot lease in the Christiana Executive Campus at 220 Continental Drive near Newark, owned by Delle Donne & Associates.

Global law firm McDermott, Will & Emery has signed a new lease at the Brandywine Building in Wilmington. | DBT PHOTO BY JACOB OWENS

In Wilmington, the largest deal was by global law firm McDermott, Will & Emery, which is moving from the Nemours Building to about 15,100 square feet in the neighboring Brandywine Building. Both are owned by Buccini/Pollin Group, which is undertaking a massive redevelopment of the Nemours Building.

At Chestnut Run Plaza at 4250 Lancaster Pike west of Wilmington, recently acquired by The Commonwealth Group, Charles Schwab & Co. extended a roughly 7,500-square-foot lease while the investment firm Brown Brothers Harriman inked a 5,300-square-foot lease. Elsewhere, computer and IT training company Online Consulting Inc. leased about 4,100 square feet in the Rockwood Office Park north of Wilmington.

Newmark also noted that the development of Avenue North and the Chestnut Run Innovation & Science Park (CRISP) will bring new, high-profile Class A office space to the market in the next two years, offering some hope of a return for some users.

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