Newmark Reports Weaker Q2 for North Delaware Office Market
Law firms remain a beacon of hope
The New Castle County office market experienced a slowdown in the second quarter of 2022, with absorption losses recorded across all submarkets, according to a report by Newmark, a commercial real estate firm.
The vacancy rate in North Delaware rose to 18.3% from 17.3% in the first quarter and 18.2% in the second quarter of 2021. Asking rents fell slightly to just over $26 the square foot.
“While the overall condition of downtown (Wilmington) remains poor, there is noticeable activity in the suburbs, particularly for Class A buildings,” said Neal F. Dangello, senior general manager of the office of Wilmington to Newmark.
Downtown has seen a continuation of employers consolidating or leaving 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 as they adapt to a hybrid environment with no assigned desks or workstations. Emphasis is also placed on amenities that will bring staff back to the office.
The report notes that health and safety complications associated with the Omicron variant are in the rearview mirror, leading employers to finalize return-to-work policies. According to a national survey conducted by WFH Research, 10.7% of employees do not have a clear direction from management regarding future working arrangements. This is the lowest level recorded since the start of the survey in January 2021.
The report says a strong employee preference for hybrid arrangements combining home and office work schedules has reduced demand for office space.
One example came when AAA Mid-Atlantic released its 68,034 square feet of office space in the Ogletown area near Newark.
Negative office space absorption in New Castle County erased gains in the first quarter. Sublease space now totals over 300,000 square feet, with approximately 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 moved from the Delle Donne Corporate Center in west Wilmington to Continental Drive in Ogletown-Stanton, reducing the square footage by 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 landlord concessions are making high-end buildings more attractive, Newmark reported.
One bright spot, according to Elliman, comes from law firms “going gangbusters” in northern Delaware. Companies had been adding space even before the Covid-19 pandemic, said Elliman, who mentioned a number of companies in expansion mode.
The second quarter report noted that Delaware’s job recovery has been weaker than for the country as a whole, with challenges including inflation, rising interest rates and disruptions in the Supply Chain.