How This Delaware Metro Is Competing With Its Big City Rivals
Downtown Wilmington, Delaware's office market hit a bump last year when Bank of America skedaddled, putting the Central Business District's vacancy rate to around 25%.
But it is only a bump, with the local economy as a whole thriving, said the speakers at Bisnow's recent North Delaware State of the Market event. Wilmington still has what the speakers, especially Wilmington Mayor Michael Purzycki, calls a "small city advantage" in attracting young workers and the businesses that hire them.
That is, Wilmington is a small city in a region of large cities, the speakers said. That means fewer of the large-city problems of its neighbors, such as congestion and a ballooning cost of living. At the same time, Wilmington's Market Street district and its Waterfront are evolving to have the interesting urban texture that millennials (and many baby boomers) want.
Wilmington might be a small city between New York and Washington, D.C., but that has its advantages, Purzycki said.
For one thing, developers from larger cities are coming to Wilmington as part of looking for new markets, the mayor said. What they find is a market that is more accessible, and where it is easier to do business.
"We're a city where if you're an employer or developer, and you need the mayor, you can get to me in 10 minutes," Purzycki said. "If you really need the governor, we can get him for you in 20 minutes."
Downtown Wilmington also has seen similar growth in its urban core as larger cities, Purzycki said, such as the residential and commercial development around Market Street, and for similar reasons. People want to be in cities.
"Who is living in all these apartments?" Scott asked.
"It's an array of people, with a lot of young people who love to live Downtown, but also older people," the mayor said. "People from New York and D.C., who come here and say, 'What a great location,' or people who work in those cities during the week but maintain their residence here.'"
With about 1,000 new residential units soon coming online, the Downtown market is going to find out what its limits are, the mayor said.
"But we feel positive about it," he said. "Demand for apartments has been strong, and there's a lot of energy."
Scott also asked why the mayor feels so strongly that the city needs to control the former Rite Aid location at Eighth and Market. The mayor argued that it is a key location to encourage further redevelopment in the neighborhood.
"It's a beautiful old building, a former S.H. Kress location," Purzycki said. "There are properties that are key to control, and that's one of them."
The transformation of the Wilmington Riverfront is another key component of the city's future growth, aided by the new bridge across the Christina River and the infrastructure work near the bridge, Purzycki said. Before serving as mayor, Purzycki was the executive director of the Riverfront Development Corp.
"Across the river was always just that," Purzycki said. "It wasn't amenable to development potential. Today you see this beautiful bridge crossing to the riverfront, and immediately everything over there has changed. The feeling is different. Development is going to start quickly."
JLL Senior Vice President Jamie Vari said that while the Wilmington CBD's overall office vacancy is high now, he is optimistic about its long-term strength.
"Everyone's perception of the market should be more optimistic than it is," Vari said. "A few buildings account for much of the total, and even now and a lot of tenants aren't considering the lower-quality space."
Vacancy in Downtown trophy properties is actually fairly low, less than 10%, while Class-A and Class-B properties considered as a whole are about 20%, Vari said. It is the Class-C properties that are really wanting for tenants, he said, with some buildings as much as half empty.
As for the suburbs, the office market is a lot stronger overall, Vari said, at around 6.5% vacant.
Moreover, there is a lot of tenant interest in other asset classes in greater Wilmington, DSMRE Managing Partner Tripp Way said.
"Most developers and leasing agents don't have enough time in a day to do their deals," Way said. "We focus on all the asset classes, and everyone in our office is busy."
The event was held at the new 76ers Fieldhouse, a 161K SF multipurpose sports complex and training facility in Wilmington, which the Buccini/Pollin Group developed, completing it last year.
Panelist Buccini/Pollin Group principal Robert Buccini said that the genesis of the project involved a number of interested parties working toward a goal that wasn't even on the horizon only a few years ago. Not the least among them was the city, which assembled the land for the project.
"Mayor Purzycki had the foresight to say, this is a gateway entrance to the city," Buccini said. "Our thought was the residential didn't make sense here, but at the same time the [76ers] were looking for a G League facility and a practice facility, and Nemours [Alfred I. duPont Hospital] was looking to do 10K SF of doctors' offices. How do you put all that together, [is what] we asked."
The practice facility and the medical office space represent solid anchors for the area, which will encourage further development, Buccini said.
Downtown has come a long way in a fairly short time when it comes to restaurants and other entertainment, and their growth is fueling further growth, the speakers said.
"Restaurants are booming, with name chefs coming to town, and the market is creating destinational retail," Buccini said. "People are coming to Wilmington for the weekends, especially for sports tournaments. The city used to die in the summer, but now it's a peak season, and people are staying longer. That was inconceivable a few years ago."
There is a roughly two-thirds retention rate in his company's residential properties in Downtown Wilmington, up from 40% to 45% a decade ago, Buccini said. "Back then, there wasn't that much do to," he said.
Cinnaire Corp. Vice President for Development Hughlett Kirby, who is an affordable housing specialist, said she is optimistic about the prospects for a more diverse housing stock in Wilmington, and for growth in the city. For the first time in a decade, she noted, all of the low-income tax credits awarded by the state were in Wilmington, for three different projects.
Also, Wilmington is lucky to have a base of strong regional banks that are active in financing all types of local real estate projects, and that stability help gives the market an even keel, Kirby said.
Still, there is some cause for caution, Kirby said.
"We're living in a world where a black swan could sail in at any time," Kirby said. "For instance, who would have thought that a virus in China would have the impact that it has been having in recent weeks?"
Some retail in the Wilmington market has hit a pause, Way said, but well-located retail properties aren't having any trouble finding tenants. He compares the pause in parts of the retail market to what happened a few years ago in the local industrial market.
When GM and Chrysler left, the industrial market sagged for a while, Way said. Even nearly full buildings had to compete for tenants with the vacant ones, but eventually the space was absorbed as other users located here or expanded.
"Likewise the big-boxes will be absorbed, and vacancies will be lower and rents higher," Way said.