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RESEARCH 3Q 2018

WILMINGTON
OFFICE MARKET
ACTIVITY IN DELAWARE CURRENT CONDITIONS
CONTINUES TO SHIFT TO Bracebridge I & III sell for $13.5 million
THE SUBURBS
Market activity in Delaware remains concentrated on the Wilmington
The Delaware market grew at a sluggish pace during the third quarter Suburbs
of 2018, as its overall vacancy rate remained flat from the second
quarter at 14.3%. The Wilmington Central Business District was Comcast Leases 154,000 square feet at 400 Commerce Drive in the
Wilmington South submarket
especially stagnant. Vacancy in that submarket held steady at 15.8%,
as small tenant moves were responsible for only 13,496 square feet of
MARKET ANALYSIS
occupancy loss. Wage taxes, head taxes and parking taxes are all
driving up the cost of doing business in the city, making the suburbs Asking Rent and Availability
look more attractive to potential tenants. Additionally, two upcoming
vacancies are expected to weigh heavily on the CBD, making its Asking Rent and Vacancy
improvement unlikely.
$26 22%

$24 20%
CBD Class A vacancy was flat at 16.8% for the third quarter. However,
two vacancies in the CBD will cause Class A vacancy to spike to more $22 18%

than 27.0%. M&T’s 145,080-square-foot space at the Parkview, located $20 16%
in the Wilmington CBD, became available this quarter, as M&T plans to $18 14%
vacate before the end of the fourth quarter. In addition, Bank of
$16 12%
America sold Bracebridge I and III, which will add 450,624 square feet 3Q08 3Q09 3Q10 3Q11 3Q12 3Q13 3Q14 3Q15 3Q16 3Q17 3Q18
of vacant space to the market. Direct Asking Rent (Price/SF) Vacancy (%)

The Wilmington South and Wilmington West submarkets both posted


Net Absorption (SF, Thousands)
positive absorption, totaling 5,954 square feet and 26,889 square feet
of occupancy gains, respectively. In Wilmington South, the Okonite 350
Company and Delivery Circle occupied sublease space totaling 3,622
175
square feet and 3,082 square feet, respectively, at 111 Continental
0
Drive, while in Wilmington West, Cover & Rossiter occupied 10,348
square feet at 2711 Centerville Road. -175

-350
The suburbs have become a destination for larger tenants, too,
-525
particularly the Wilmington South submarket, where Comcast recently 3Q08 3Q09 3Q10 3Q11 3Q12 3Q13 3Q14 3Q15 3Q16 3Q17 3Q18
leased approximately 154,000 square feet at 400 Commerce Drive.
Also in Wilmington South, Connections leased 64,992 square feet at MARKET SUMMARY
590 Naamans Road, with plans to occupy the space in the final quarter
Current Prior Year Ago 12 Month
of the year or the first quarter of 2019. Quarter Quarter Period Forecast
Total Inventory 18.9MSF 18.9 MSF 17.8 MSF 
SUBURBAN RENT INCREASES SLIGHTLY IN
Vacancy Rate 14.3% 14.3% 14.7% 
THE THIRD QUARTER
The Delaware market’s average direct asking rental rate increased by Quarterly Net Absorption 11,842 -57,128 -90,058 
$0.06/SF quarter-over-quarter to $24.95/SF, sustaining a run of high Average Asking Rent $24.95 $24.89 $24.86 
market rates. Rents over the past year have been the highest in over
Under Construction 0.1 MSF 0.1 MSF 0.2 MSF 
10 years, with $25.17/SF in the first quarter of 2018 as the high
water mark. Deliveries 26,000 63,000 0 

© NEWMARK KNIGHT FRANK | 2018 RESEARCH | 1


3Q 2018 WILMINGTON OFFICE MARKET

As increased costs push CBD rates higher, greater demand for Also in the CBD, Real Capital Solutions purchased a 162,212-square-
suburban space is causing those rates to rise as well, bringing up the foot building at 600 North King Street for $12.5 million, or $77/SF, from
overall market rate. AIG’s real estate platform, AIG Global Asset Management Holdings.

Rents for Class A and Class B buildings in the CBD continued to grow, The same organizations also traded the Rockwood Office Park in
rising $0.21/SF to $27.66/SF and $0.10/SF to $22.81/SF, respectively. Wilmington North, with Real Capital Solutions purchasing the three
Rents in the suburbs rose as well, with the exception of Wilmington buildings, a total of 204,725 total square feet, for $15.3 million,
North. Wilmington South increased $0.14/SF to $21.43/SF, while or $74/SF.
Wilmington West grew $0.13/SF to $25.89/SF. In Wilmington South,
the Chopin and the Commonwealth buildings at University Plaza both CONSTRUCTION ACTIVITY
increased by $2.50/SF to $22.00/SF, while in Wilmington West, Linden There was only one delivery in the market this quarter. Linden Hill
Park ticked up $0.50/SF to $23.00/SF. Station delivered 26,000 square feet of Class A office space along
4420 New Linden Road in the Wilmington West submarket. STAR
In Wilmington South, the Chopin and the Commonwealth buildings at Campus Phase III (100,000 square feet) remains under construction at
University Plaza both increased by $2.50/SF to $22.00/SF, while in 540 South College Avenue in Wilmington South. There is a dearth of
Wilmington West, Linden Park ticked up $0.50/SF to $23.00/SF. office construction in the CBD, but a number of multifamily and hotel
projects are underway. For example, a 62,000-square-foot former
BRACEBRIDGE SALE LANDS office building at 1300 North Market Street finished conversion to a
Capital Commercial Investments, out of Austin, Texas, purchased two Residence Inn in March of this year. Wilmington is well placed as a
of Bank of America’s Bracebridge office buildings on King and French satellite city to Philadelphia, and as office tenant interest in the
streets in Downtown Wilmington for a total of $13.5 million, or $30/SF. Wilmington CBD wanes, multifamily projects are picking up the slack.
The new owner plans to put the space on the market for lease. The
$13.5 million price tag is well below the replacement cost of $200/SF
to $300/SF, so the owner should be in a position to be aggressive with
rental rates to attract new tenants to the CBD.

SUBMARKET STATISTICS
Total Under Total Qtr YTD Class A Class B Total
Inventory Construction Vacancy Absorption Absorption Asking Rent Asking Rent Asking Rent
(SF) (SF) Rate (SF) (SF) (Price/SF) (Price/SF) (Price/SF)

Wilmington CBD 8,244,305 - 15.8% -13,496 24,964 $27.66 $22.81 $26.33

Wilmington North 3,965,404 - 9.5% -7,505 -18,407 $25.16 $24.86 $24.95

Wilmington South 4,724,528 100,000 13.7% 5,954 -20,292 $23.65 $21.16 $21.43

Wilmington West 2,008,825 - 19.3% 26,889 3,676 $27.56 $22.86 $25.89

Delaware Market Area 18,943,062 100,000 14.3% 11,842 -10,059 $27.20 $22.25 $24.95

© NEWMARK KNIGHT FRANK | 2018 RESEARCH | 2


3Q 2018 WILMINGTON OFFICE MARKET

DELAWARE SELECT LEASE TRANSACTIONS


Tenant Building Submarket Type Square Feet

Comcast 400 Commerce Drive Wilmington South Direct 154,000

Confidential Tenant 590 Naamans Road Wilmington North Direct 64,992

Cover & Rossiter Little Falls Center 1 Wilmington West Direct 10,348

Seasons Hospice and Palliative


Christiana Executive Campus 220 Wilmington South Direct 4,267
Care of DE

DELAWARE SELECT SALES TRANSACTIONS


Building Submarket Sale Price ($) Price/Square Foot Square Feet

Rockwood Office Park Wilmington North $15.3 Million $74.49 204,725

Bracebridge I & III Wilmington CBD $13.5 Million $30.00 450,624

600 North King St Wilmington CBD $12.5 million $77.06 162,212

© NEWMARK KNIGHT FRANK | 2018 RESEARCH | 3


3Q 2018 WILMINGTON OFFICE MARKET

ECONOMIC CONDITIONS EMPLOYMENT BY INDUSTRY


The Wilmington metropolitan’s unemployment rate ticked up to 4.1% at Wilmington, DE, Metropolitan Division,
the beginning of the third quarter, an increase of 20 basis points. This Annual Average 2017
is despite massive job growth in the construction sector, which posted
a 12-month, 18.5% change as of August 2018. Much of this is due to Construction
the rapid growth in multi-family construction in the region as well as 4.9% Manufacturing
13.4% 4.8%
the continued success of the e-commerce industry. Trade,
4.0% Trade/Transportation/Utilities
transportation and utilities sectors also grew, as did business and
18.0% Information
professional services. 9.4%
Financial Activities

On the national front, the unemployment rate stayed flat at its new low 1.1% Business & Professionals
of 3.9%, as the economy remains strong. Trade tariffs are increasing 17.4% Education/Health
12.3%
anxiety about the economic future, but that has not yet translated into
14.8% Leisure/Hospitality
adverse impacts on the market as a whole.
Other Services

Government

Source: U.S. Bureau of Labor Statistics

UNEMPLOYMENT RATE PAYROLL EMPLOYMENT


Not Seasonally Adjusted Total Nonfarm, Not Seasonally Adjusted,
12-Month % Change
10.0%
4.0%
8.0%
3.0%
6.0% 2.0%
4.0% 1.0%

2.0% 0.0%
-1.0%
0.0%
Aug-13 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18
Aug-13 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18
United States Wilmington, DE, Metropolitan Division
United States Wilmington, DE, Metropolitan Division

Source: U.S. Bureau of Labor Statistics, Philadelphia Federal Reserve Bank Source: U.S. Bureau of Labor Statistics

CONSUMER PRICE INDEX (CPI) EMPLOYMENT GROWTH BY INDUSTRY


All Items, 12-Month % Change, Not Seasonally Adjusted Wilmington, DE Metropolitan Division, August 2018,
12-Month % Change
4.0%
Total Nonfarm
Construction
3.0%
Manufacturing
2.0% Trade/Transportation/Utilities
Information
1.0% Financial Activities
Business & Professional
0.0% Education/Health
Leisure/Hospitality
-1.0% Other Services
Aug-13 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18 Government

United States Wilmington, DE, Metropolitan Division -8.0 -4.0 0.0 4.0 8.0 12.0

Source: U.S. Bureau of Labor Statistics Source: U.S. Bureau of Labor Statistics

© NEWMARK KNIGHT FRANK | 2018 RESEARCH | 4


3Q 2018 WILMINGTON OFFICE MARKET

DANIELA STUNDEL SILAS LEAVITT


Research Manager Research Analyst
215.246.2725 610.755.6969
dstundel@ngkf.com silas.leavitt@ngkf.com

Newmark Knight Frank has implemented a proprietary database and our tracking methodology has been revised. With this expansion and refinement in our data, there may be adjustments in
historical statistics including availability, asking rents, absorption and effective rents. Newmark Knight Frank Research Reports are available at www.ngkf.com/research

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© NEWMARK KNIGHT FRANK | 2018 RESEARCH | 5