WILMINGTON – After the last quarter of 2020 saw employers finally begin to shed office space in the wake of the COVID-19 pandemic, the start of 2021 saw a continuation of the trend, according to real estate brokerage reports.
The Wilmington metro market saw 48,000 net square feet vacated in the first quarter of 2021, while the first quarter a year ago saw more than 390,000 square feet leased, according to Newmark, a major brokerage that closely tracks the New Castle County market. Regional reports from brokerages CBRE and JLL found similar results.
The city’s central business district (CBD) continues to deal with the highest vacancy rate in the county, with 26.4% of the city’s most prominent square footage remaining unused, Newmark reported. It sustained modest occupancy losses in the first quarter, primarily contained to the move of law firm Tybout, Redfearn & Pell’s from Shipyard Drive to the Rockwood Office Park in the city’s northern suburbs.
The most notable downsizing in the suburbs was the health care system Nemours’ decision to give back 42,210 square feet at the Applied Bank Center high-rise, putting space on the market for sublease.
Subleasing, or when a tenant finds a secondary occupant to take over its leased space through the end of its term, has become an increasingly visible part of the commercial real estate market nationwide in the wake of the pandemic. While major markets like New York City and Philadelphia saw a subleasing spike starting last summer, Delaware escaped the trend until late in 2020.
Before Nemours, Farmers Insurance listed its entire 210,000-square-foot office near the Pennsylvania border for sublease and Cigna is listing 30,000 square feet at its Bellevue Corporate Center offices as well. In a smaller move, global consulting firm DuPont Sustainable Solutions (DSS) vacated about 5,300 square feet off Lancaster Pike, offering the space for sublease as well, according to Newmark.
In total, available sublease space measured 468,702 square feet at the end of the first quarter – the highest total recorded since 2010. While it has about doubled since the start of 2020, Newmark notes that sublease space still only accounts for about 3% of total space on the market.
Wills Elliman, senior managing director of the Wilmington office of Newmark, said that while there is a lot of available sublease space on the market, there is even more not publicly disclosed. Tens of thousands of more square feet of so-called “shadow space,” or tenants with space to sublease that don’t want the public to know of the vacancies, are being shopped as well.
“To a certain extent, some of these companies are a little embarrassed to be putting big chunks of space out there,” he said, noting that some of the unused space is under contract through as long as 2030.
While prospective sublessees could find space for significant discounts, there just aren’t a large number of shoppers in the market with the pandemic still ongoing, Elliman said, adding that even if a surge of buyers came to the market to fill subleased space, it’s essentially switched business for the market at large as the computed occupancy rate only tracks leased space.
As vaccination efforts ramp up and companies begin to see the light at the end of the tunnel, there may be reason for cautious optimism ahead though.
“For pretty much all of 2020 up until mid-March, I was pretty much seeing clients hit the pause button. But I’ve got to say that in the past few weeks, many of them are hitting play,” Elliman said.
