DOVER — Although central and southern Delaware’s commercial real estate market is dominated by industrial and warehouse space, the COVID-19 pandemic is highlighting some weaknesses in what both Kent and Sussex counties have to offer.
A market analysis of Kent and Sussex counties by Newmark, a major real estate brokerage in Wilmington, found that the strongest market was in multi-family residential housing, according to the firm’s research manager, Lisa DeNight.
Multi-family space, with 20,000 units, saw vacancy drop from 3.6% to 2% in the past year. The largest sale in either county in 2020 was the Willows at Dover, which sold for $19.6 million last November.
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The entrance sign to the near capacity Kent County Aero Park | PHOTO BY JACOB OWENS[/caption]
The industrial market was also holding strong, as both counties had a shared industrial market of about 3 million square feet.
“This is a more resilient [sector], with current vacancy at 11.6%. It rose less than a percentage point year-over-year,” DeNight told Delaware Business Times.
There is 764,000 square feet of industrial space in Kent County available to lease and 895,000 square feet in Sussex County. However, with recent announcements of Amazon’s last-mile warehouse in Seaford and manufacturer Shore Industries in the Dover Aero Park, those figures may be lower than Newmark’s first-quarter forecast.
However, DeNight added that downstate Delaware has not seen significant industrial construction over the past five years, as compared to New Castle County. Time will tell if that trend will continue with KRM Development Corp. focusing on spec buildings in both Seaford and Smyrna, and ample sites in central Delaware.
“New Castle County’s industrial market can more than serve the Kent and Sussex population, [with] 5.9 million square feet of industrial space under development and more to come,” DeNight said. “Perhaps when New Castle County has exhausted available land sites, development may push southward.”
The land is there, and so is existing warehouse space. But the challenge for both counties’ chief marketers is how to meet the demands of the industrial and distribution sector.
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Bill Pfaff[/caption]
“When you’re looking at shovel-ready versus existing space, it really depends on the customer,” Sussex County Economic Development Director Bill Pfaff told DBT. “With those looking at existing space, they’re typically ready to get to work faster. With shovel-ready, it’s about getting the site just right.”
In Sussex County, there is both a wealth of land and existing warehouse space after big companies like Allen Harim and DuPont ceased or moved operations in prior decades. Having more land available can be a positive for marketing to existing companies. After Allen Harim moved to Millsboro, it had warehouses at its headquarters property that it first looked to lease out to other tenants. Eventually, the poultry company decided to use the space for its deboning operations, consolidating operations, Pfaff said.
But Sussex County’s biggest disadvantage can be the lack of infrastructure reaching that raw land and the state’s overall slow permitting process. Pfaff pointed to the Delaware Business Roundtable’s Ready in 6 initiative, which proposes creating a service to streamline communication for permitting and shortening the process to six months or less.
Delaware’s permitting process can take up to 24 months, placing it at a distinct disadvantage to Maryland, Pennsylvania, and at least three southern competitors, according to the 2019 report.
“We can improve that process, and it would be game-changing if Gov. Carney supports this. We have to do better to streamline this process for those who are looking,” Pfaff said. “It all depends on the location, whether the site has access to water, sewer, roads. If they don’t, it can make the process longer.”
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Linda Parkowski[/caption]
In central Delaware, the Newmark analysis solidifies what Kent Economic Partnership Linda Parkowski has been focusing on all along: small to medium manufacturers and distributors.
“Warehousing is getting a lot of notice, pre-COVID. E-commerce during COVID has accelerated that, and 500,000-square-foot spaces or larger are in demand right now,” Parkowski said. “With small to medium manufacturers, they typically look for existing space to move into, but they can build. My concern is what’s in the 764,000 available square feet. Where is it? What size is it? How can we meet that demand?”
In terms of office space, Newmark’s analysis shows that Kent County has 687,000 square feet of available office space while Sussex County has 208,000. Most office space is clustered in central Delaware, and DeNight pointed out that there has been a small bump in construction in this sector. Over the past five years, there has been 200,000 square feet built between the counties, mostly driven by medical offices.
But office vacancy rate rose from 17.7% to 20.5% in 2020 for office space in Kent and Sussex counties, and over the last five years vacancies have remained between 15 and 22%.
“It’s been steadily climbing since 2018, so if anything, the COVID-19 pandemic has accelerated an existing trend,” DeNight said. “Market activity has been muted and vacancies have outpaced any small occupancies.”
Parkowski was confident that the office lease market would pick up in Kent County, but “it may not be what it was in 2020.”
Pfaff said while Sussex County may have lower inventory, he wanted to wait out the pandemic and see whether the need forced the county to tap more into that market.
“With people working more remotely, I’m not so sure it’s as important as it used to be. The real question that every town in every county and every state has on their mind is broadband. That really drives things, from education to business,” he said of the need to install high-speed internet connection.
