Northern New Castle County’s office space market has weathered the recession better than some of its neighbors, but storm clouds still hang over the commercial realty sector.
The greater Wilmington area has seen a dropping vacancy rate in office space over the past three quarters, bucking a national trend of soaring vacancies, according to a recent report by Grubb & Ellis, a commercial real estate advisory firm.
“There are not a tremendous amount of transactions happening, but we’re not completely dead, either,” said Bart Mackey, vice president of Patterson-Woods Commercial Properties.
The Wilmington area has benefited because of its diversity – everything from pharmaceutical companies to banks to chemical manufacturers call New Castle County home – and that variety helps keep the market stable in spite of the ebbs and flows of the greater economy, Mackey said.
But the recession has driven down rental rates throughout the county and convinced many tenants to make shorter term leases as they try to plan for a very uncertain future, he said.
| Office space vacancy rates
Downtown Wilmington: 18.9% Net 2Q absorption in square feet* Downtown Wilmington: 53,074 - Grubb & Ellis * Absorption is the leasing of vacant office space. A negative number denotes, businesses leave than move into the area. |
The recession may technically be over, but the county’s jobless rate has nearly doubled to 8.5 percent over the past 12 months. In spite of that, tenants rented 260,000 square feet of space in the second quarter, the report said, helped along by Barclay’s recent move into the Iron Hill Corporate Center and Amtrak’s expansion into the Renaissance Center.
When large-scale companies like Amtrak expand, it tends to have a ripple effect in the marketplace, said Karl Kalbacher, director of redevelopment for New Castle County. For example, Alstrom, a French company, recently opened up shop in New Castle to maintain Amtrak cars, he said.
Another thing that has helped boost office rentals in the county is the rising bankruptcy rate, Kalbacher said. Bankruptcies are up 35 percent and that’s led to a strong market of new and expanding law firms, he said.
But attracting new tenants is as much a factor of demographics as it is rental rates, said Mark Kleinschmidt, president of the New Castle County Chamber of Commerce.
New businesses tend to look first at the quality of the workforce, followed by the stability of costs like taxes and utilities and then the responsiveness of the local government, he said.
And providing government incentives is one area where New Castle County has to be creative, Kalbacher said.
“If we try to compete strictly on a dollar to dollar basis, we’re not going to make it,” he said. “We just don’t have the deep pockets other states have.”
Instead, New Castle County works closely with new tenants to help them through the land use process, he said, making sure variances are granted and land is appropriately zoned for development. When Sallie Mae began its plan to move to Newark, Kalbacher said the county worked diligently to streamline the fit out of the company’s new building.
The stimulus bill has made some funds available, like $76 million in recovery zone facility bonds the county can hand out for private, non-residential activities, he said, and as more stimulus funds hit the street, things should keep looking up.
Richard Stat, president of Commerce Associates, an executive office center in Wilmington, agrees. He expects next year to see a return to the over-95-percent occupancy rates of years past.
“With new construction winding down and the economy stabilizing, the rental market has every opportunity to rebound,” he said.
Lee Johnstone, a Grubb & Ellis broker, refused to comment about the report for this story.
