WILMINGTON — Vacancy rates in northern Delaware have shown signs of stabilizing as Class A office buildings in Wilmington dropped below 20% last quarter with the help of Incyte finalizing the purchase of Bracebridge I and Bracebridge III for $34 million.
The overall vacancy rate fell 270 basis points to an adjusted rate of 18.5%, according to the second quarter report from Newmark, a major commercial real estate brokerage that closely follows the Delaware market. Regional reports from other brokerages like Colliers and Cushman & Wakefield largely matched those findings, however CBRE put Wilmington’s estimated vacancy rate for the quarter at 25%.
Either way, northern Delaware’s office vacancy rate is showing signs of improvement — the last quarter showed that the region’s open office rate was at 27%.
The quarter that ended June 30 saw a net loss of 7,038 square feet of leased office space to date, Newmark reported. Close to 100,000 square feet of leases were signed during the second quarter, putting the region at a whole behind the average leasing pace this time a year ago. Combined with the previous quarter, the region reports roughly 240,000 square feet of leases through the first half of the year.
Incyte’s acquisition of Bracebridge I and III for $34 million marked a major shake-up in the region’s commercial real estate sector, as it removed more than half a million square feet of vacant space in the downtown market. The former Bank of America buildings had been listed for years and was last advertised at a rent of $27.50 per square foot.
Removing the two Bracebridge buildings also suppressed Wilmington’s asking rents. The average rent fell to $25.69 per square foot compared to the prior quarter, down 1% compared to a year ago. Rents typically increased 1% per year for a decade until the COVID-19 pandemic in 2020.
Incyte CEO and Chairman Hervé Hoppenot said that while the move to downtown Wilmington was not the first plan – plan A was to build a headquarters in Wilmington’s Alapocas suburb – he said that he was energized by the new opportunities ahead.
“One of the first criteria was to stay not too far from where we are, so why not go for the center,” he told the Delaware Business Times. “We can participate in something broader than us, contributing to downtown Wilmington’s future and bringing people to a building that had been empty for years.”
He also noted the Longwood Foundation’s plan to use the remaining Bracebridge building as an education complex also served as a possibility to draw more people to Wilmington, recreating the days where scores of people moved through the streets of Delaware’s largest city during the week.
“We’re speaking with [the Longwood Foundation] on how to optimize the space for everyone, and I do think it’s a fantastic opportunity,” Hoppenot said. “Four blocks will be transformed and it’s an exciting time to be part of that vison.”
One of the struggles many commercial real estate brokers have noted in the Wilmington area includes its vast inventory of older buildings. Office buildings built after 2000 have a vacancy rate of 12.5%, 600 basis points down from the area’s overall average and showing the appetite for modern work environments is strong, Newmark analysts reported.
Hoppenot said that while it would be costly to renovate the two buildings that were built in the 1990s, the company was prepared to take on construction in phases.
“It’ll start with the first building overlooking Rodney Square. Maybe not every floor will be fully furnished at that point, but doing it in phases makes the most financial sense,” he said. “But when we’re done, there’ll be meeting rooms and an auditorium. The lab work is very expensive, so that makes the most sense to leave it at the current site.”
There were also other deals signed in the commercial real estate market in the second quarter, though very few individual leases were for over 10,000 square feet of space. Of note, ATI Physical Therapy leased a 25,000 square-foot suite in the Sabre Building off Ogletown-Stanton Road.
Four law firms also renewed their leases this quarter, including three firms that are based in Wilmington’s center business district. Robinson & Cole LLP, Bernstein Litowitz Berger & Grossmann LLP and Montgomery McCracken Walker & Rhoads LLP collectively renewed leases for 20,407 square feet of space in Wilmington’s business district.
