Wilmington area leasing market feeling the effects of office downsizing

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According to a Newmark report, the northern Delaware office market is beginning to take a hit from the coronavirus pandemic.

The commercial real estate firm reported that the Wilmington area office sector remained relatively stable during the earlier stages of the Covid-19 crisis.

Newmark has an office in Wilmington.

Of the major markets in the Philadelphia metro area, the Wilmington area had the highest utilization rate of leased office space, with approximately 25 percent actual occupancy in the first- quarter of 2021.

However, during the latter half of 2020, pressure from remote work strategies resulted in downsizing across the market.

The trend continued in the first three months of 2021, with negative net absorption of 48,101 square feet. The Vacancy rate stood at 18.4 percent, 1.7 percent above a year ago.blank

Some space went off the market. Two vacant office properties in Foulkstone Plaza, within the Wilmington North submarket, were razed.

Over the past few years, nearly 200,000 square feet of obsolete office space has been removed from Wilmington North to make way for mixed-used redevelopment and new construction.

Wilmington’s Central Business District (CBD) continues to wrestle with the four submarkets’ highest vacancy rate, 26.4 percent in the first quarter, an increase from year-end 2020 measures.

The CBD sustained modest occupancy losses of 11,130 square feet, primarily due to the law firm of Tybout, Redfearn & Pell relocating from 750 Shipyard Drive into the suburban market at 501 Carr Road, Newmark reported.

Occupancy losses in the suburbs were also modest, amounting to 36,971 square feet.

In the Wilmington North submarket, the aforementioned move-in by Tybout, Redfearn & Pell was offset by Nemours deciding to officially give back 42,210 square feet at 2200 Concord Pike, putting the space on the market for sublease.

Elsewhere in the suburbs, smaller vacancies occurred, some due to a permanent shift to remote work. DuPont Sustainable Solutions effectively vacated 5,302 square feet at 4250 Chestnut Road in Wilmington West.

DuPont Sustainable Solutions also added their space to the increasing volume of sublease availabilities in the market. In total, sublease volume measured 468,702 square feet in the first quarter, the highest recorded since 2010.

Subleased space essentially doubled since first-quarter 2020 but remained less than 3 percent of the total available in the market.

Some tenants with space requirements may be drawn to the flexibility and below- market-rates sublets typically offer, although around half of the current sublease volume has less than three years of term remaining, which is a limiting factor for the share of tenants seeking a longer-term solution to their space needs.

Market asking rents continued a yearlong trend of modest decline, softening slightly from $25.48/SF to $25.41/SF, quarter-over-quarter.

Rates for Class A space were stable, with declines visible in the Class B/C sectors.

Further downsizing is expected in the Delaware office market throughout 2021 as the country emerges from the pandemic.

“As a consequence, we see continued downward pressure on rents, which could be tempered if the economic recovery gains more steam than is currently anticipated,” Newmark reported.

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