WILMINGTON – Although the northern Delaware market largely escaped the threat of increasing office vacancies through the early months of the COVID-19 pandemic, several large tenants began shedding space last quarter, according to leasing reports ...
[caption id="attachment_207937" align="aligncenter" width="1351"]Health insurer Cigna vacated some 60,000 square feet at its Bellevue Park Corporate Center offices last quarter, according to Newmark. It was one of several Wilmington tenants to downsize its leases in the period. | PHOTO COURTESY OF CBRE/COSTAR[/caption]
WILMINGTON – Although the northern Delaware market largely escaped the threat of increasing office vacancies through the early months of the COVID-19 pandemic, several large tenants began shedding space last quarter, according to leasing reports from all four major brokerages.Two of the largest local losses came from health care insurer Cigna, which vacated about 60,000 square feet at its Bellevue Park Corporate Center location, and engineering, procurement, and construction company KBR, which downsized its Chapman Road office space by about 38,000 square feet, according to the fourth quarter report from Newmark, a major brokerage that closely covers New Castle County.Cigna spokeswoman Courtney Nogas said there were no layoffs connected with the downsizing at the insurer’s offices just north of Wilmington.“This was just an effort the use the space more efficiently,” she told Delaware Business Times, noting the decision to consolidate was made pre-pandemic.
[caption id="attachment_207326" align="alignleft" width="300"] Farmers Insurance does not plan to return to its Beaver Valley Road offices and is looking to sublease the space, according to a Newmark report. | DBT FILE PHOTO[/caption]
The largest office space vacancy, however, comes as Farmers Insurance has chosen to list its entire 210,000-square-foot office space at its Beaver Valley Road complex near the Pennsylvania border off U.S. Route 2020 for sublease, Newmark reported. The insurer has “no plans of reoccupying through its 2024 lease expiration,” according to the brokerage report."As part of a regular review to ensure our real estate portfolio aligns with current business goals, we have decided to reduce our office space in Wilmington, Del., where employees will transition to working virtually on a permanent basis," Carly Kraft, a Farmers Insurance spokeswoman, told Delaware Business Times.Such subleasing, or when a tenant finds a secondary occupant to take over its leased space through the end of its term, has become increasingly common in large metropolitan cities, but has been slower to catch on here. Wills Elliman, the senior managing director at Newmark’s Wilmington office, said that he doesn’t see subleasing as a trend that will catch on for most in the Delaware market, in part because there just aren’t a lot of companies looking to add or move space right now.Many tenants looking for space are holding off on making long-term commitments right now and instead signing one or two-year renewals while waiting to see where things go, Elliman added.“What we're seeing right now is companies hitting the pause button and just trying to reassess,” he said. “One tenant I was working with was looking at doing a major expansion with a 10- to 12-year lease, but they decided to right now just do a one-year lease.”Some employers may also choose to retain existing space or expand it while concurrently reducing density in a post-COVID era. Others are looking to add COVID-compliant amenities, such as an office gym that would allow employees to avoid using a public gym and therefore reducing viral transmission risk for companies.While suburban Wilmington was stung by a more than 300,000-square-foot net reduction last quarter, the loss in downtown Wilmington, where the prospect of remote working has weighed heavily on city officials and small business owners who depend on commuting workers, was less pronounced. Although the city’s Central Business District continues to grapple with a vacancy rate just under 25%, it only saw a 25,000-square-foot net reduction.The largest loss in the city came from Citibank, which renewed its lease at the Brandywine Building for 67,000 square feet but downsized its footprint by an entire floor, Newmark reported.
[caption id="attachment_207938" align="alignright" width="300"] Law firm Berger Harris recently expanded its offices at the I.M. Pei Building at 1105 N. Market St. in Wilmington. | PHOTO COURTESY OF BPGS/COSTAR[/caption]
The city did see a smaller lease renewal and expansion to 13,500 square feet by law firm Berger Harris in the I.M. Pei Building. Outside the city, investment giant Morgan Stanley renewed a lease for about 17,200 square feet in the Delaware Corporate Center off U.S. Route 202.Although Delaware has been more cautious in its approach to lockdowns compared to neighboring Pennsylvania and New Jersey, actual office occupancy in the Wilmington area remains low, estimated by Newmark at about 25%.“Encouragingly, however, this metric is the highest observed throughout the office markets comprising the tri-state Greater Philadelphia region,” the report stated.Elliman said that he doesn’t believe any of the major New Castle County office building owners will make rash decisions over the next few quarters as they wait to see how the pandemic, the vaccination campaign and economic response plays out.“I haven’t seen any Class A office landlord panic whatsoever,” he said. “I think everyone's 10-year view is this economy is still booming; everything will be fine, eventually.”