[caption id="attachment_232066" align="aligncenter" width="1200"] As Wilmington's office employers have adjusted to hybrid schedules, many building owners are converting unused space to other uses like apartments and hotels. | DBT PHOTO BY JACOB OWENS[/caption] WILMINGTON – A few weeks ago, a collection of city leaders gathered at the ribbon cutting for major developer Buccini/Pollin Group’s latest apartment project. Over the last two decades, such scenes have become common in Delaware’s largest city as revitalization has grown in the central business district (CBD). [caption id="attachment_231128" align="alignright" width="300"] Buccini/Pollin Group and city officials celebrated the opening of the 203-unit Crosby Hill complex on April 4. | DBT PHOTO BY JACOB OWENS[/caption] The BPG project known as Crosby Hill was marked by an important distinction though: It’s the first newly built apartment building in the city center in decades. “This is particularly satisfying,” said Robert Buccini, co-founder of the multi-faceted development firm that drives much of the development in its hometown. “Most of our brand-new construction had been on the Riverfront rather than downtown because there’s so many vacant buildings. But now that the vast majority of buildings have been renovated and put back to use, there was the opportunity to build from the ground up.” Where and why BPG built Crosby Hill is also emblematic of what the future of Wilmington might look like. The developer turned a parking lot that had been largely underutilized in recent years into a $62 million, 203-unit complex. It now plans to do the same at a former Wilmington Parking Authority parking lot it acquired off 8th Street. As the city emerges from the shadows of the COVID pandemic and comes to terms with what the future of office work will look like, Wilmington is likely to see substantial changes in approach to development. Three days a week For generations, Rodney Square, Delaware Avenue and Market Street were awash in downtown office workers milling about from Monday to Friday, meeting with clients, grabbing a bite to eat and commuting to and from the office. In our post-pandemic reality, however, most of the city’s major employers have not mandated a full-time return to the office for all workers. Some days Wilmington’s streets feel fuller than others, as workers continue to Zoom into meetings and eat from their kitchens. JPMorgan Chase, the city’s largest employer with a CEO who is among the most bullish in the country regarding a return to offices, is still on a hybrid schedule for employees, with an expectation of 60% of their time in office and 40% working from home, according to a spokesperson. WSFS Bank, which has its headquarters in Wilmington, is preparing to bring more of its workers into the office after Labor Day, according to a spokesperson. All vice presidents and above, and any newly hired associates, will be required to spend four days a week in office, with either Wednesdays or Fridays used as a remote day. Meanwhile, tenured associates will continue a three-day office work week, with Wednesdays and Fridays as optional remote workdays. [caption id="attachment_216989" align="alignleft" width="300"] Shared workstations like these are a part of the new Barclays US Consumer Bank headquarters. | DBT PHOTO BY JACOB OWENS[/caption] British banking giant Barclays invested heavily into its U.S. headquarters in Wilmington’s Riverfront during the pandemic, buying the building for $89 million and investing in a floor-by-floor model to entice workers back starting in November 2021. Nearly two years later, the company is still in a hybrid model and committed to continuing it, according to a spokesperson. Most employees are in the office Tuesdays to Thursdays, with Mondays and Fridays typically used for remote work. Meanwhile, credit giant Capital One has left more than 200,000 square feet of downtown offices over the last two years, choosing to consolidate its footprint and move whole segments of its call center and operations staff to full-time remote work. Outside banking, Wilmington’s strong legal community has also navigated a hybrid work reality. The city’s largest law firm, Richards, Layton & Finger, moved to remote work through the pandemic and is now “committed to bringing everyone together,” according to Lisa Schmidt, president of the firm. “Being in the office four days a week, Mondays through Thursdays, fosters the collaboration among partners and mentoring of associates that benefits both our attorneys and our clients,” she said. Peter Walsh, the incoming chair of Potter Anderson & Corroon, said the firm currently expects associate attorneys to be in the office three days a week, with first-time summer associates coming in for all five. Like many, Mondays and Fridays tend to be quieter days as lawyers take advantage of remote work, he said. While he recognizes the advantages of remote work, Walsh, who returned to his office in June 2021, is a proponent of the office environment. “I think there’s too much observational learning that goes on in the office,” he said. “I’m keeping an open mind, and we’ll have to strike the right balance.” Conversion projects While most of Wilmington’s largest employers have retained office space to some degree, many have downsized their presence in the hybrid environment, and some have given it up entirely. Wilmington’s CBD hit a vacancy rate of 27.9% in the first quarter of 2023, up from 23.2% a year ago, according to Newmark, a major commercial real estate brokerage that closely follows the Delaware market. It’s the highest vacancy rate for the CBD since the pandemic began. With so much office space suddenly coming back on the market and recognizing that employers are increasingly turning away from physical offices, more landlords are converting their buildings in Wilmington into other uses. [caption id="attachment_229493" align="alignleft" width="200"] The Westover Companies completed a conversion of this office building into apartments. | DBT PHOTO BY JACOB OWENS[/caption] Three different high-rises on Market Street have been converted into apartments or a hotel, while BPG has invested millions into conversion of the upper floors of the Market West Building, formerly known as the Nemours Building, into luxury apartments while expanding The Mill coworking space. For Chris Buccini, the head of commercial leasing for BPG, conversion of unused offices into amenity-rich spaces helps drive tenant attraction and retention while finding viable uses. BPG has unveiled a comprehensive vision for its CBD projects that has also helped drive new deals – its 1000 N. West Building is nearing full tenancy despite the market trends. “Whoever said that the world of offices is dead is just wrong. It’s just that people are rethinking the way they work, and they want to be in a place that’s highly amenitized,” he said. At 1313 N. Market, formerly known as Hercules Plaza, manager Johnson Commercial Real Estate (JCRE) has already converted vacant space into the Chancery Market food hall and an independent movie theater. It’s now planning to convert unused offices across two floors into a 44-room lifestyle hotel. “We need to make it more mixed use. The days of the standalone corporate buildings are all gone,” said Scott Johnson, owner of JCRE. [caption id="attachment_232065" align="alignright" width="300"] Alpha Technologies plans to convert unused offices in its One Custom House building into a golf simulator. | DBT PHOTO BY JACOB OWENS[/caption] At One Custom House, the high-rise owned by Alpha Technologies is bringing something even more unique to the market: a golf simulator. Alpha Tech CEO Harry Virk and Executive Vice President Jason Tres have been working to convert a first-floor space in their six-story office building into a lounge, bar, event space and golf simulator where players can tee off at world-famous courses with friends. “We’re hoping to drive some new foot traffic and revenue into the building and really give tenants and the workers downtown something cool, fun and unique to do,” Tres said. Impact on the city The changing nature of work in the city is also hitting the municipal government led by Mayor Mike Purzycki. [caption id="attachment_229387" align="alignleft" width="300"] Wilmington Mayor Mike Purzycki recognized the challenge that hybrid work schedules poise for the city. | DBT PHOTO BY JACOB OWENS[/caption] “Working from home has negatively impacted wage tax revenue. In America’s largest cities, 25% of employee time is spent working from home. Empty office buildings have resulted in fewer customers for our small businesses and lower tax assessments on appeal – inevitably lowering property tax revenue. This post-pandemic reality foreshadows a declining tax base and future fiscal challenges for cities across America. Wilmington assuredly is not exempt,” he said in his 2024 State of the City address. Principally, the hybrid or remote move of previously city-based workers has hit Wilmington’s wage tax revenue collections. The 1.25% tax on wages earned by workers based in the city, even if they are not city residents, is the single largest source of income for the city. In late 2020, Wilmington followed the footsteps of larger cities in the region by declaring that employers that could document an employee’s work-from-home schedule could receive remittances on withheld payroll taxes. The task is onerous but has led to an uptick in such refunds. In the approved Fiscal Year 2024 budget, the city anticipates remittances to reach about $3.9 million next fiscal year, or about 225% more than the typical $1.2 million in the pre-pandemic period. City leaders warned that “this level of refunds is assumed to be the ‘new normal.’” Concurrently, the city is optimistic about the growing wage scale for city workers amid a tight job market and the addition of new employers, so wage tax collections are estimated to grow by about $2 million, or 3.1%, next fiscal year. The $66.7 million in estimated wage tax revenue would mark the highest level since the pandemic began. What’s next? It was often said during the boomtown heydays of DuPont and MBNA that Wilmington’s sidewalks rolled up after 5 p.m. and workers returned home to their suburban homes. Today, thanks in part to the efforts of firms like BPG and others, the city is increasingly home to a new generation of workers who choose to live downtown, and that is driving the growth of new entertainment options and a thriving restaurant scene. In 2022, the city saw its biggest year-over-year population gain in nearly a decade, adding an estimated 676 residents, according to the U.S. Census Bureau. Building permits have averaged $253 million annually over the past three years at a time when many major metropolitan cities have seen declines. Wilmington has added 2,400 new apartments since 2016 and has about 1,000 more units in the pipeline, including several projects by new-to-market development firms. One of the biggest hurdles to overcome in turning the tide in Wilmington was getting more residents on the streets to help create a comfort factor. Rob Buccini noted that for many years the lack of residents on streets helped drive a stigma about the city, but now it’s common to see people walking their dogs, jogging or heading to work. “The key has been critical mass, and it’s a hard business so it’s nice to see other people doing it,” he said.