WILMINGTON – After starting 2021 with a rash of downsizing and subleasing, the northern Delaware office market largely stabilized in the second quarter, with vacancies actually falling slightly and rents increasing, according to some brokerage reports.
The New Castle County office market’s vacancy rate fell 20 basis points in the second quarter to 18.2% as about 31,000 net square feet was leased in the period, according to Newmark, the national brokerage that most closely tracks the Delaware market. Regional reports from brokerages CBRE and JLL found differing results, reporting a 1 percentage point and a 1.6 percentage point increase in total vacancy, respectively. Each brokerage has different qualifications and definitions for the space it tracks.
The city’s central business district (CBD) continues to deal with the highest vacancy rate in the county, with nearly a quarter of the city’s most prominent square footage remaining unused. It saw only a few large investments in the second quarter, including law firm McCarter & English LLP extending its lease for more than 22,000 square feet at The Renaissance Centre at 405 N. King St.
The Wilmington suburbs largely tracked net losses in leased space last quarter. That was led by Discover’s relocation from 106,000 square feet at the New Castle Corporate Commons to just 26,000 square feet at the Iron Hill Corporate Center near Newark. In April, the bank told Delaware Business Times that the downsizing was due to remote working opportunities and that it would not lead to job losses.
One of the largest gains in the suburbs was Blackrock Financial Management’s lease renewal of more than 60,000 square feet at the Bellevue Corporate Center, according to CBRE.
Perhaps most notable was a slowdown in the trend of sublease opportunities in the county.
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.
Then Nemours subleased its space in the Wells Fargo Tower off U.S. Route 202 while Farmers Insurance listed its entire 210,000-square-foot office near the Pennsylvania border, and Cigna listed 30,000 square feet at its Bellevue Corporate Center offices as well.
In total, available sublease space measured 468,702 square feet at the end of the first quarter – the highest total recorded since 2010 – but it fell almost 14% to 405,732 in the second quarter, primarily due to Farmers Insurance giving back more than 50,000 square feet, according to Newmark.
“As we head into the second half of 2021 and into 2022, expect an increase in leasing activity and fewer sublease opportunities added to the market,” wrote Jared Jacobs, the Newmark researcher for the Delaware market. “Absorption numbers will likely remain in the negative, however could push closer to the positive by year-end 2021.”
For Wills Elliman, senior managing director of the Wilmington office of Newmark, the interest in pursuing space has never been higher.
“Most people are absolutely, positively going back to the office at some point,” he said, noting that Labor Day is a turning point that many employers are anxiously eyeing.
He believes that there will be further large employers looking to move large numbers of workers remote permanently or instituting a hybrid office-remote model that will allow them to significantly downsize their space though.
“We saw that with Discover and I’ve had conversations with two others looking in that direction,” he said. “But I’d say they are the exception. Most people want to go back and are planning to go back.”
