North Delaware CRE Is Emerging From The Pandemic With Unprecedented Strength
America's Sun Belt has been the primary beneficiary of the pandemic-accelerated demographic shift to areas with lower costs of living. But North Delaware is another big gainer in that area, and it has the real estate community dreaming bigger.
A critical mass of restaurants and entertainment offerings has finally been reached in Wilmington to effectively sell the city to out-of-market talent, panelists said at Bisnow’s North Delaware State of the Market event on Feb. 24. Meanwhile, a combination of recent demographic trends and financial commitments from state and local governments has supercharged growth prospects for Wilmington and the region as a whole.
Delaware is the fastest-growing state in the Northeast by population, having grown by 10% over the past decade, Delaware Prosperity Partnership President and CEO Kurt Foreman said at the event. The state also saw the biggest increase in average rent of any state from the start of 2019 to July of last year and had the third-largest drop in rental vacancy over that period, according to a study from insurance platform QuoteWizard cited by Cinnaire Senior Vice President of Business Development Jake Stern.
The demographic trends are enough to justify the construction of not just more apartments but new office buildings as well, in Wilmington at least, The Buccini/Pollin Group co-President Chris Buccini said. After 10 years of laying the groundwork for BPG’s portion of the Riverfront development district near Downtown Wilmington both figuratively and literally, the developer anticipates the pace of deliveries to greatly increase in the near future.
“I would say by next year, there should easily be $400M worth of new construction going on [at the Riverfront],” Buccini said, adding that an apartment building, parking garage and park are first on BPG’s agenda, followed by a 120K SF office building and life sciences project. “And it’s going to happen quickly.”
The network of nonprofits and government-funded agencies that has been formed in the past half-decade is hoping a similar dynamic is at play in the life sciences industry. As public money has flowed to incubators in the past few years, the need has grown for life sciences space suitable for companies graduating from them.
In 2021, the state piloted and then launched in earnest a $10M initiative called the Graduate Lab Space Grant Program to meet that need by subsidizing developers who build such space. After identifying five startups, the Delaware Prosperity Partnership disbursed the funding; those companies now have a combined 100K SF in lab space under construction, DPP Director of Innovation Noah Olson said.
The program’s success prompted Gov. John Carney to allocate another $10M in his next budget proposal. While that could be cut in negotiations with the state legislature, the demand for graduate lab space has been forcefully demonstrated, said Ariel Gruswitz, an associate director at development consulting firm Facility Logix who worked at DPP when the grant program began.
“Once we get to the point where we are now, we can start to create that ready-to-go inventory that is hard to find everywhere,” Gruswitz said. “The pipeline that [incubators] are helping to create is going to help us fill those types of spaces, but we do need developers to be invested in creating some of that spec lab space in the 5K SF to 15K SF range that meets the space needs of companies coming out of incubators.”
One of the first grant recipients was Prelude Therapeutics, which was granted $5.5M last fall and will move into Chestnut Run, the former DuPont campus being redeveloped by MRA Group, as early as this summer. As Chestnut Run delivers, it will be filled quickly by more companies like Prelude, open up vacancies large enough to lure even bigger companies or do both.
“I think Chestnut Run is going to be just a real game-changer for the state, and for the life sciences, science and technology industries here,” Gruswitz said.
Though players in the national multifamily market believe 2021 will likely prove to be an outlier year in terms of rent growth, North Delaware’s growth trajectory began before the pandemic, meaning the responses by developers like BPG and industry groups like DPP were already underway and look poised to capture a significant amount of demand. Though some of the speakers at the event, like Gruswitz and Wilmington Mayor Michael Purzycki, acknowledged their optimism risks making them seem like cheerleaders for the region, there is more data than ever to support being bullish on the area.
“People are finding that we're really at the intersection of affordability and quality of life,” Buccini said. “There are a lot of people who are moving themselves or their businesses here because you can live really well here and still have what we never had before: the quality of life. And so we're finally living up to what we’ve wanted to be.
“I think a lot of global forces have really put a spotlight here, and it's not coincidental that right now Delaware is thriving more than it's been in 25 years.”