Wilmington's Office Market Still Figuring Out Life After Bank Of America's Consolidation
Wilmington, Delaware, has been gaining a fair amount of positive buzz in the past year, but one number still hangs over the city, at least for its office market.
The vacancy rate for Downtown Wilmington remains at around 25%, according to multiple market reports, as it has since Bank of America sold two of its three Bracebridge office buildings on North King Street in 2018 and vacated them in March of last year. The space it gave back, nearly 500K SF, accounted for about 7% of the city's office supply, according to a Newmark Knight Frank report.
Because the office market is small enough to be so sensitive to one major giveback, the vacancy rate by itself is an unfair measure to judge the health of Wilmington's office market, Buccini/Pollin Group co-founder and principal Rob Buccini told Bisnow.
“It's frustrating,” Buccini said, pointing out that JPMorgan Chase's downtown offices aren't counted as part of the city's supply because they are owner-occupied. “I know that we tried to get CBRE and JLL to count the JPMorgan buildings in the market numbers.”
The new owner of Bracebridge I and III (with BofA holding onto Bracebridge II) is Texas-based Capital Commercial Investments, which has not made public any plans to recruit new tenants or renovate the buildings' interiors. Widener University expressed interest in renting a large portion of the available space for its law school, but nothing came of it, Buccini said.
“We were hoping that the BofA buildings would be leased to Widener Law School, but that does not look like it’s going to happen,” Buccini said. “The new owner just was not as responsive as they should have been to that use requirement.”
BPG has led the charge of new multifamily development in Wilmington in recent years, in addition to completing a new fieldhouse and G-League arena for the Philadelphia 76ers, which will host Bisnow's North Delaware State of the Market event on Jan. 30.
But while Delaware retains its statewide advantage of a legal system friendly to the formation of new companies, Wilmington's wage tax gives it similar issues to Philadelphia: a suburban office market that can offer sizable tax savings while pulling from the same population pool as downtown.
The 300 apartments that BPG brought online in 2019 are already 95% leased, Buccini said, with fewer concessions than would be average for market-rate multifamily in Center City, Philadelphia. The company has also shepherded new, well-received food concepts like the DECO food hall in the DuPont building, beer gardens, coffee shops and Italian eatery Bardea, recently named a James Beard semifinalist for Best New Restaurant, Mid-Atlantic region.
“None of that stuff existed a few years ago, which has contributed to the people moving downtown,” Buccini said.
The lion's share of tenants that have moved into BPG's new buildings is made up of young professionals who commute by car or train into Philadelphia. Having enough to offer culturally to draw that crowd has been a big development of the past couple of years, but it hasn't translated to a large bump in job numbers.
“I’ve talked a lot about that before, how it would be nice to keep those workers here,” Berger Harris partner Benjamin Berger said. “We have a good talent base, and I don’t know what the attraction is of working in Philly and living in Wilmington. Maybe they’re making more money in Philly and their rent dollars go farther [here].”
Some gains are being made, as with local coworking shop The Mill, which now occupies 30K SF at the BPG-owned former DuPont building where Nemours is now the anchor tenant. For companies looking to place a token footprint in Delaware to take advantage of its business-friendly environment, coworking is a logical option, Berger said.
M&T Bank is also planning to add at least 200 tech-focused jobs over the next few years at its Wilmington office, but there has been no hint of an imminent taker for the 500K SF weighing down the city's occupancy numbers.
With the incremental growth that has been demonstrated, some have called for Capital Commercial Investments to break up the space for smaller users, but that would eliminate the one clear advantage it has in the market: Were a major tenant to materialize, Bracebridge would be its only option for miles around, Buccini and Berger said.
Though Bracebridge has not been empty for a concerning length of time, its vacancy is a reflection of a tenant's market that has remained since the Great Recession, Berger said. To attract any occupiers in such an environment, an office needs to be modern and highly amenitized — making any well-located, Class-B office building a prime target to be converted in order to capitalize on robust multifamily demand, like BPG has already done a few times.
“Market Street as a corridor is where Buccini has been developing, and there are a couple more buildings where that could work,” Berger said. “Why continue to compete for tenants when you know there’s a demand for housing?”