NORTHEAST SNAPSHOT, SEPTEMBER 2006
Delaware Office Market
Throughout the northern Delaware office market, there continues to be a healthy balance between supply and demand, although in comparison to other metropolitan markets in the region, asking rents, leasing activity and investment activity remain relatively tempered. For example, vacancy rates have remained in the 14 percent range for the past 2 years. Only in the past year has the market seen a recognizable appreciation in overall asking rents, driven largely by new construction in the western New Castle County and Wilmington CBD submarkets.
While some have painted Wilmington’s office market as extremely risky, it appears as though the office leasing market has weathered the storm, associated with MBNA’s acquisition by Bank of America. According to Delaware’s Department of Labor, at the end of the first quarter, Bank of America only laid off 800 employees, far less than the 3,000 to 4,000 that some analysts had projected in a worst case scenario.
Over the past year, the state has experienced a strengthening in several sectors including leisure and hospitality, which added 1,500 jobs, and professional and business services, which added 1,400 jobs. In June, while the national unemployment rate was 4.6 percent, the state's unemployment slipped to 3.7 percent — compared to 4.2 percent just 1 year ago. In the past 12 months, Delaware added 1,500 leisure and hospitality jobs and more than 1,400 jobs in the professional and business services sector, which should mitigate, to some extent, the short-term impact of the banking industry’s downsizing.
The market is expected to continue its measured gains driven by the legal and financial service providers, which continue to represent a disproportionate share of tenant demand. Despite healthy market conditions, landlords are becoming increasingly aggressive in lease negotiations with a strong focus on tenant retention. Additionally, landlords and owners are developing alternative ways to differentiate their existing product and compete not just on price by maximizing their value proposition. One such example is 1001 Jefferson Street, which will capitalize on its advantage of offering the largest block of contiguous space in the Wilmington office market by moving forward on a variety of interior and full exterior upgrades.
On the investment front, the Wilmington office market will likely join the Philadelphia CBD, Southern New Jersey and western Pennsylvania suburban office markets as having set a new high water market, on a per square foot basis, for an office acquisition. The former MBNA office building located in Greenville is expected to trade for more than $240 per square foot.
At the beginning of the third quarter there was more than 1 million square feet of construction underway with an additional 200,000 square feet of proposed development activity slated to be underway in the near future, with the majority of current development activity occurring in the CBD. Interestingly, two of the largest projects underway in the downtown area are only one block away from each other and signal the emergence of Wilmington’s Western Gateway — the 371,000-square-foot speculative development, The WSFS Bank Center at 500 Delaware Avenue; and The Corporate Plaza II at 800 Delaware Avenue, a 153,000-square-foot build-to-suit for Blue Cross/Blue Shield.
In addition to the 250,000-square-foot Juniper Bank building currently under construction along the Riverfront, The Buccini/Pollin Group broke ground on the largest mixed-use development project in Delaware since World War II. Justison Landing, a $500 million, 11-acre redevelopment site located off along the Christina River will, in an initial phase, include town homes, lofts, apartments and retail space. Over the course of the next 5 years, additional retail and more than 300,000 square feet of office space is slated for development. Heading to Wilmington’s northeastern suburbs, the most notable project is Commonwealth Group’s 1,110-unit residential and commercial development in Claymont.
Pennsylvania-based Trefoil Properties entered the Delaware market with its Commons at Little Falls development located at the intersection of Lancaster Pike (Route 48) and Centerville Road in Wilmington’s northwestern suburbs. The 38-acre site is approved for over 250,000 square feet of office space in addition to a restaurant, bank and daycare facility.
Ashby & Geddees signed a lease for 23,273 square feet of space — the entire eighth floor — at the WSFS Bank Center at 500 Delaware Avenue in the second quarter. The law firms plans to occupy the space in January 2007 when its current lease at 222 Delaware Avenue expires. The building’s other legal tenant, Morris, James, Hitchens & Williams will occupy the two top floors, the 14th and 15th. In addition, McCarter & English signed a lease for 22,135 square feet of space on the eighth floor of the Renaissance Center at East 4th Street in the second quarter; Mission Critical Enterprises signed on for 19,000 square feet of space at 1007 N. Orange Street in the first quarter; the IRS moved into 24,300 square feet of office space at 1352 Marrows Road in the second quarter; and Wachovia Bank moved into 46,000 square feet of space at Rockwood Office Park 505 in the first quarter, completely taking the second and third floors.
— Charles Brown, vice president; Leigh Johnstone, senior vice president; and Joseph Capodanno, associate, of Grubb & Ellis in Wilmington, Delaware.
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