Delayed return to work remains issue in area office market

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The New Castle County office market is still facing return-to-office issues related to the Covid-19 Omicron variant, Newmark reported in its fourth-quarter 2021 report.

Newmark operates an office in Wilmington.

According to Kastle System’s occupancy data, 37.2% of the Philadelphia metropolitan statistical area’s workforce has made a return to the office, which is lower than the current major metro average of 39.8%.

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Due to the recent spike in Covid cases in the Philadelphia-Wilmington metro area that led to an indoor mask mandate in Delaware, significant numbers of employees will not be returning to the office at the beginning of January as had been hoped.

However, some researchers say Omicron could actually hasten the virus’ transition from pandemic to endemic and lead to more normal conditions, Newmark noted.

According to the report, tenants are still taking a wait-and-see approach. Active tenants are generally looking for less space than they previously occupied due to current work-from-home or hybrid models.

Short-term renewals continue to be prevalent, and new leasing remains weak.

Activity in the Wilmington suburbs remains slow but is better than in the Wilmington Central Business District. However, new subleases continue to be an issue.

The overall vacancy rate increased from 17.5% in the third to 18.1% year-end 2021, Newmark reported. However, despite the increase since last quarter, year-over-year vacancy declined by 60 basis points.

The fourth quarter of 2021 closed out the year with negative 50,797 square feet of absorption. The Wilmington South submarket contributed to the negative absorption when Comcast put the entire 154,086-square-foot office building at 400 Commerce Drive in the Christiana Corporate Center near Newark as a sublease. That caused the vacancy rate in the Wilmington South submarket to increase from 12.9% to 15.3%.

Newmark reported two user sales in the New Castle Corporate Commons this quarter that helped offset some of the negative absorption in the submarket. The 48,000-square-foot building at 2 Reads Way was purchased by Analytical Biological Services, Inc. for $4.9 million, and Nurses ‘n Kids purchased the 24,000-square-foot building at 11 Reads Way from NAI Emory Hill for $2.5 million. Nurses ‘n Kids plans to convert the building to a medical daycare center. The organization will relocate in 2022 from Churchman’s Road in New Castle.

Asking rental rates increased by 2.1% quarter-over-quarter, from $25.50 a square foot in the third quarter to $26.04 a square foot in the fourth quarter. A year ago, the asking rental rates rose by 2.2%, up from $25.48 a square foot.

Notable leases in the fourth quarter, according to Newmark:

  • Academia Antonia Alonso inked the largest of the quarter for 115,000 square feet at 300 North Wakefield Drive in Newark. The school will move into the building during the second quarter of 2022.
  • In the Wilmington North submarket, Advanced Materials Technology, Inc. leased 30,467 square feet at 3521 Silverside Road in Talleyville. With the support of the state grants, AMT will expand its lab space at Concord Plaza by nearly 10,500 square feet.
  • In the Wilmington CBD, the law firm of Barnes & Thornburg signed a 24,180-square-foot lease at 222 Delaware Avenue in the PNC Bank Center. The firm will relocate from the Brandywine Building at 1000 North West Street in the Wilmington CBD.

Moving into 2022, the overall vacancy rate is projected to decline as sublease space additions appear to have peaked. Asking rental rates were strong in 2021, which can be expected to move into 2022. New construction deliveries will not be a factor, as no new office projects are currently in the pipeline to deliver in 2022.

Also releasing a fourth-quarter report was Colliers, which reported the CBD  Wilmington vacancy rate decreased slightly from 20.5% to 20.2%, with a larger drop in the suburban market from 12.0% to 10.9%.

Colliers has an office in Wilmington. Reports on vacancy rates sometimes vary due to the selection of buildings tracked.

Colliers noted that Barclays Bank purchased the building it leased at Christina Crescent, on the Wilmington Riverfront. Barclays plans to upgrade the building and add amenities for its employees.

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