Law firms remain a bright spot
The New Castle County office market experienced a downturn in the second quarter of 2022, with absorption losses being recorded in all submarkets, according to a report from Newmark, a commercial real estate company.
The vacancy rate for northern Delaware rose to 18.3%, up from 17.3% in the first quarter and 18.2% in the second quarter of 2021. Asking rents were down slightly at a little over $26 a square foot.
“While the overall state of downtown (Wilmington) remains poor, there is notable activity in the suburbs, especially for Class A buildings,” said Neal F. Dangello, senior managing director at the Wilmington office of Newmark.
Downtown has seen a continuation of employers consolidating or exiting office space, the most notable example being the massive former Bank of America/MBNA complex.
Wills Elliman, senior managing director of Newmark, said companies are reconfiguring smaller blocks of space in adapting to a hybrid environment without assigned offices or workstations. The emphasis is also on amenities that will bring staff back to the office.
The report noted that health and safety complications associated with the Omicron variant are in the rearview mirror, leading employers to finalize return-to-office policies. According to a national survey by WFH Research, 10.7% of employees are without a clear directive by management regarding future working arrangements. This is the lowest level recorded since the survey began in January 2021.
The report indicated that a strong preference by employees for hybrid arrangements that combine home with office work schedules have reduced the demand for office space.
One example came when AAA Mid-Atlantic put its 68,034 square feet of office space in the Ogletown area near Newark on the market.
Negative absorption of office space in New Castle County erased gains in the first quarter. Sublease space now totals more than 300,000 square feet, with about 89% of that figure in the southern New Castle County submarket.
Bank of New York Mellon left 57,000 square feet of space in the Bellevue Park Corporate Center and Deutsche Bank Trust left the Delle Donne Corporate Center west of Wilmington to Continental Drive in Ogletown-Stanton, reducing square footage from 9,000 to 3,200 square feet.
Demand for Class A office space remains stronger than for Class B as a “flight to quality” and concessions by landlords make the higher-end buildings more attractive, Newmark reported.
One bright spot, according to Elliman, is coming from law firms that are “going gangbusters” in northern Delaware. Corporate firms had been adding space even before the Covid-19 pandemic said Elliman, who mentioned a number of firms in an expansion mode.
The second quarter report did note that the employment recovery in Delaware has been weaker than for the nation as a whole, with challenges that include inflation, rising interest rates and supply chain disruptions.