Wills Elliman took out the roster of available Class A office buildings in New Castle County with more than 40,000 square feet.
The list is short, the Vice President at the Wilmington office of Newmark, Grubb Knight Frank noted. Over the next year, large blocks of available space could virtually disappear as tenants move from Class B to Class A space, Elliman said.
According to Elliman, the popularity of Class A space is reflected by rising rents in that category, particularly at signature buildings like 500 Delaware Avenue (home of WSFS) and 1201 Market Street, across the street from Elliman’s office in the I.M. Pei building at 1105 Market St.
The Pei office tower, which at one time struggled to find tenants, is also fetching solid rental rates, Elliman said. The building underwent a renovation project several years ago.
“We are definitely seeing a flight to quality,” said Rick Kingery, vice president at the Wilmington office of Colliers, who agrees that Class A space is in demand.
Kingery says one example is the Renaissance Center in downtown Wilmington, a building that came online during the economic downturn. Thanks in part to a location next to the New Castle County Courthouse and a perkier LOMA (Lower Market Street) area, Renaissance is filling up rapidly, after struggling in the early going.
In the suburbs, the Applied Bank Center, the former Rollins Building on Concord Pike, is a hot property. Elliman said the building could be nearly filled up in a year ago or so.
Contributing to the bright picture for Class A is a lack of new construction. Elliman said it is difficult to find financing for a new “spec” building as banks and regulators remain wary.
Despite, continuing coverage about the city’s high homicide rate and related issues, Elliman is seeing interest in Wilmington from suburban tenants. That might seem surprising, but Elliman says some suburban office dwellers, especially young people, don’t like the isolation.
One source of leasing activity that has flattened out is the legal community. Elliman says a decline in corporate bankruptcy filings is cited as a reason for the trend. The trend to Class A comes as the office vacancy rate dropped in New Castle County in the first six months of 2014. Colliers, reported the vacancy rate decreased in both downtown Wilmington and the suburban markets during the first two quarters from 15.6 to 14.7 percent.
Newmark Grubb Knight Frank, reported a 17.7 percent vacancy in the second quarter from 19.4 percent. Vacancy calculations vary among commercial real estate firms.
“These leases, along with JP Morgan’s acquisition of AstraZeneca’s South Campus at 1800 Concord Pike, significantly changed market fundamentals in the Northern New Castle submarket. In the past three months, that submarket’s overall vacancy shrank by 660 basis points to 16.7%, its lowest level in more than a decade, the Newmark report noted. Pressure remained intense on the Class B office market in downtown Wilmington as some tenants moved to Class A offices. On the plus side, recent ownership changes in Class B buildings in downtown could lead to renovation projects and more tenants, Colliers reported.
Major deals included Navient moving its headquarters to the Wilmington Riverfront, Nemours Foundation moving to the Applied Bank Center from the Newark area. 21st Century Insurance is downsizing, but will maintain 150,000 square feet in north Wilmington, according to Colliers.Newark Grubb Knight Frank reported that another notable deal was the sale of 1001 Jefferson Street, which had sat largely vacant for more than a decade. The building was sold to Colonial Parking Inc. 1001 Jefferson and could be headed to demolition.
