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While Wilmington office returns rise, leasing falls in Q3

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The Buccini/Pollin Group are taking nearly 300,000 square feet of offices at the Nemours Building off the market in a conversion to apartments. | DBT PHOTO BY JACOB OWENS

WILMINGTON – The number of workers reporting to offices in the Wilmington region is on the rise, but the total amount of leased office space continued to fall last quarter, according to brokerage leasing reports.

The New Castle County office vacancy rate rose by 600 basis points, adding to second quarter losses, to finish at 18.9%, according to Newmark, the real estate brokerage that mostly closely tracks the Delaware market. The third quarter reportedly saw nearly 61,500 square feet of net office space vacated and another 260,000 square feet leave the market, while average asking rents rose 3 cents to $26.11 per square foot.

Personal injury law firm Casarino Christman Shalk Ransom & Doss, P.A., has leased nearly 7,800 square feet in the Brandywine Building. | DBT PHOTO BY JACOB OWENS

The largest lease of the third quarter was personal injury law firm Casarino Christman Shalk Ransom & Doss, P.A., moving from the Nemours Building to nearly 7,800 square feet in the neighboring Brandywine Building.

Also making moves into the Christiana Corporate Center were the state’s Office of Management and Budget, which leased about 5,000 square feet, followed by engineering firm Wallace Montgomery & Associates LLP taking about 2,400 square feet and CrossCountry Mortgage, which leased 2,250 square feet.

“Rents held steady this quarter as landlords continue to justify higher asking rates by offering sizable concession packages, which include free rent and outfitting costs,” Newark analyst Jared Jacobs wrote in the quarterly report. “Unfortunately, the value of these offerings has declined as building material prices have increased dramatically, limiting the scope of enhancements. Items like cement, steel studs and drywall are in short supply and don’t show an inclination of price improvement in the near term.”

One reason for optimism in the Wilmington market is the increase in average daily traffic in the central business district, which has returned to about pre-pandemic levels, according to Delaware Department of Transportation data. Workers returning to offices, even in hybrid schedules, should bolster employers to retain their office space.

The market could also see declining vacancy rates by way of office-to-apartment conversions. For example, the Buccini/Pollin Group has quietly begun plans to convert about 260,000 square feet over nine floors of offices in the Nemours Building into apartments, according to Newmark.

“While strong multifamily performance may not solve all office market woes, it provides elements that could benefit offices in the future. Since the beginning of the pandemic, companies have been facing widespread labor shortages and have relocated to new markets to find talent. Office-to-apartment conversions are one way to support Wilmington’s growing population and labor force, which could attract new businesses to backfill the market’s vacant space,” Jacobs noted.

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