The third-quarter summary from Newmark reported that the New Castle County office market is still dealing with a Covid-19 pandemic that delayed return to work plans.
The commercial broker with an office in Wilmington noted that large employers pushed return dates out to early 2022 after the Delta variant emerged.
According to Kastle Systems, only 34.2% of Philadelphia Metropolitan Statistical Area employees have made a return to the office as of the third quarter.
Space consolidations by larger tenants, particularly in Wilmington’s Central Business District (CBD), continue as some notable Delaware employers have reevaluated their space needs.
Activity in the Suburban Wilmington office market is slightly better than the Wilmington CBD, which remains largely dormant. Leasing velocity remains slow. New leases and renewals are being signed, but they are generally smaller and short-term.
There has also been an increase of office-to-apartment building conversions in the CBD market, including the 121,000-square-foot property at 901 North Market Street, which Westover purchased in 2017. Construction is finally underway, and in conversion to 82 apartments, Newmark reported.
The overall vacancy rate declined 70 basis points to 17.5% in the third quarter, down from 18.2% in the second quarter, but 1% higher than a year ago.
Asking rental rates increased to $25.50 a square foot up 0.2% quarter-over-quarter but also down in comparison with last year by 0.7%.
Marlette Funding’s 60,000-square-foot build-to-suit project at 3419 Silverside Road in north Wilmington opened and contributed to positive absorption totals.
At the end of last quarter, Delaware Claims Processing moved into 66,630 square feet at 1000 North West Street in Wilmington which also factored into this year’s positive absorption of office space.
Available sublease space has declined over the past two quarters. After climbing to 468,702 square feet in the first quarter of 2021, sublease availability has declined significantly since then by 17% to 400,556 square feet.
In the Wilmington CBD, Capital One announced it will vacate 91,000 square feet at 800 Delaware Avenue and combine it into its 240,000-square-foot building at 802 Delaware Avenue.
In the Chestnut Run R&D Campus, at Renaissance Building 735, Corteva put 41,365 square feet on the market for lease this quarter.
Notable leases signed included:
- The Delaware Division of Public Health leasing 12,000 square feet in the Cambridge Building located at 263 Chapman Road in Newark.
- At Brandywine Plaza West, located at 1521 Concord Pike in Wilmington, Ferry Joseph, P.A. leased 9,036 square feet.
- Tata America International Corporation renewing for 8,929 square feet at 4250 Lancaster Pike in Wilmington
- Buchanan Ingersoll & Rooney PC taking 3,784 square feet at 500 Delaware Avenue in the Wilmington CBD.
- Compassionate Care Hospice of Delaware, LLC leasing 3,606 square feet at 111 Continental Drive near Newark.
Moving into the fourth quarter and toward 2022, occupancy is expected to improve in the New Castle County office market, particularly in the Wilmington CBD.
While some tenants may continue to downsize their space requirements, the amount of available sublease space appears to have reached its peak in the first quarter of 2021.
Asking rental rates are expected to remain steady, as landlords will remain firm in their asking rates but may offer increased concessions for longer-term leases.
Construction is a non-factor as there are no new buildings expected to break ground over the next several months.