WILMINGTON – The New Castle County office market saw leasing losses across the board in the second quarter, as many office employers are beginning to downsize amid a post-COVID shift toward hybrid and remote working.
The vacancy rate rose by 100 basis points, giving up the first quarter gains, to finish at 18.3%, according to Newmark, the real estate brokerage that mostly closely tracks the Delaware market. The second quarter reportedly saw nearly 162,000 square feet of net office space vacated, while average asking rents fell slightly to $26.08, nearly in line with how 2022 started.
Notably, regional reports covering New Castle County from brokerage Colliers and CBRE both reported net gains last quarter after conversely finding market losses in the first quarter. Each brokerage has different qualifications and definitions for the space it tracks, with many of the differences coming from what is considered second-tier Class B space, and timing of lease reporting also plays into each calculation.
The market-wide net occupancy loss reported by Newmark was primarily due to two major losses in the Class A market.
Investment bank BNY Mellon vacated 57,000 square feet of offices at the Bellevue Corporate Center in the Wilmington suburbs. A bank spokesman told Delaware Business Times that all of the employees have been consolidated to two other office buildings in the business park as it moves toward a hybrid work model.
“At BNY Mellon, we continually evaluate our real estate footprint to ensure we are operating efficiently,” said Steve LaMarca, vice president of external communications. “Our consolidated footprint supports BNY Mellon’s new hybrid work model that provides a flexible mix of remote and in-office experiences and we remain committed to our employees and clients in the area.”
Meanwhile, AAA Club Alliance has listed its entire 68,000-square-foot call center at 200 Commerce Drive for sublease after moving its workforce remote permanently. It marks the second major loss for the Christiana Corporate Center after Comcast also took its call center workers remote, listing a 154,000-square-foot office building for sublease.
In an example of right-sizing amid the hybrid market, Deutsche Bank Trust Company moved from 9,000 square feet at the Delle Donne Corporate Center to about 3,200 square feet in the Christiana Executive Campus near Newark.
On the positive front, unclaimed property solutions manager Kelmar Associates leased more than 8,500 square feet in The Concord campus north of Wilmington, engineering firm Tetra Tech extended its lease for more than 13,000 square feet in the Christiana Executive Campus near Newark, and Delaware Business Times parent company Today Media moved its offices to nearly 6,000 square feet in the Brandywine Building in Wilmington.
While many office employers are reconsidering their space needs as employs begin working one or two or more days out of office, others are seeking to improve spaces, especially if they employ knowledge workers like lawyers, bankers, scientists and other professionals, said Wills Elliman, senior managing director of Newmark’s Wilmington office.
“The companies that value collaboration are not giving up their office space; in fact, they are doubling down and as they go forward the amenities are better to attract and retain people,” he said.
Notably, downtown Wilmington has survived the post-COVID return better than many may have suspected. While stung with a more than 24% vacancy rate, much of that space is ascribed to two or three enormous, vacated buildings, while much of the other Class A space has performed well.
Wilmington has been emboldened by a strong legal community that continues to add new faces and growing firms. In financial services, Barclays has recently invested heavily in its Riverfront home while Goldman Sachs is growing nearby, and Investor Cash Management prepares to make its introduction to the market. Even smaller firms like Carvertise have helped The Shipyard Center reach nearly full occupancy.
At the same time, landlords like Buccini/Pollin Group, McConnell Companies and Douglas Development have been investing in building upgrades and improved shared amenities like food halls to attract new tenants.
“I think we’ll see more betting long on the success of downtown,” Elliman added.
