Despite being just south of Philadelphia, Delaware continues to maintain its presence in the New England market and its own identity. After a very active period from 2005 to 2007, office development in Wilmington’s central business district (CBD) is now taking a breather. The last project finished, the Renaissance Center at 4th and King streets, still has significant vacancies. The suburban market has also slowed, and new developers are taking a wait-and-see approach before speculatively breaking ground on new projects. This current slowdown in market activity is attributable partly to the market and partly to the usual summer slump.
The slowdown has brought overall vacancy rates to 17.1 percent for Class A and B office product, including sublease space. The Wilmington CBD comes in with the highest rate at 20.5 percent (Class A and B, including subleases), while western New Castle County posts a rate of 6.2 percent, an anomaly compared to the other submarkets that lean more towards the CBD’s rate. Currently, rents for Class A space in the CBD can run from the low $20s to low $30s per square foot. Suburban rents for Class A space are equivalent, ranging from the low to high $20s.
Leasing may not be as brisk, but deals are still being made. AIG recently took 38,000 square feet at Renaissance Center. Accenture also signed a 30,000-square-foot lease at Rockwood Office Park in Wilmington, but it should be noted that the company downsized to this property from 200,000 square feet at 1801 Augustine Cut-Off.
Delaware’s largest employers can be counted on one hand, and when they do something, it impacts the market. There has been recent movement by DuPont, which is vacating 250,000 square feet in the CBD of Wilmington, causing negative absorption for the submarket. Last year, DuPont also sold one of its campuses, the 100-acre, 1 million-square-foot Barley Mill campus, and consolidated its operations into its Chestnut Run campus. The Wall Street rumors of the sale or breakup of DuPont might further impact the market, but on the bright side, the sale of the Barley Mill campus to a local developer will result in a mixed-use redevelopment project over the next several years.
Bank of America’s purchase of Wilmington-based MBNA in 2005 has caused the sale of several local properties, including the 450,000-square-foot Crozier Center office campus in Newark, Delaware. The facility was renamed Iron Hill Corporate Center. Additionally, automakers Chrysler and General Motors both maintain a large presence in the state and have been significantly impacted by the downturn in the American auto industry. Chrysler has already announced the closing of its Newark plant in 2009 and, as a result, is actively marketing the 271-acre site. Citigroup continues to grow in the suburban market, somewhat bucking the downsizing trend of many of Delaware’s largest companies.
While many of Delaware’s companies are staying put, developers are still entering the state. BPG recently purchased two buildings at University Plaza in Newark for redevelopment and, almost as quickly, BE&K expanded and took all the remaining space. Other out-of-town developers active in the region include Trefoil with the Commons at Little Falls, and GPX Partners, which acquired some of the other University Plaza buildings.
Looking into the future, the western and southern submarkets in Delaware have the greatest potential for expansion in development, once market conditions are conducive to new construction. But as for now, many of the city’s big tenants are not going anywhere.
William “Wills” Elliman is a partner with Wilmington, Delaware-based GVA Smith Mack.