Wilmington has the worst office vacancy of this millennium. So why's everyone so happy?
Matthew Korfhage, Delaware News Journal
Updated 16 min read
You’d be forgiven for being worried.
In Wilmington, office rents have dipped. Demand is flat. And area office vacancy is as high as it’s been in decades.
Ever since a worldwide pandemic turned remote work into “the new normal” or perhaps a human right, prognosticators have warned of doom for the traditional office — and perhaps also for downtowns whose storefronts rely on vibrant office life. Vacancy has risen to record levels all over the country, as 10-year leases come due and businesses shrink their office needs or disappear entirely.
Wilmington’s topline numbers can look particularly grim. By the end of last year, between 28% and 34% of Wilmington’s central business district office space stood empty, according to year-end reports from two of the nation’s largest real estate companies, Newmark and CBRE.
The Wilmington-area vacancy is worse than any time Newmark has tracked in the past 20 years, including the 2008 financial crisis. Vacancy in the city's central business district is well above the national average of 19.6% and worse than any other significant population center around Philadelphia. The only exception is Pennsylvania's tiny Plymouth Meeting, with a 40% vacancy rate in office buildings near the mall.
But when you talk to Wilmington’s biggest holders and builders of office space, some of them couldn’t be happier.
“We had one of our best years ever in leasing last year,” said Chris Buccini, one of the founding partners of the Buccini/Pollin Group, Wilmington's most prominent developer. “It's historic. Maybe in 25 years, we've had one or two years better than this one.”
A graph of vacancy in the greater Wilmington market over the past 20 years, tracked by real estate company Newmark. As of the end of 2023, the vacancy is the highest its been duirng this period. Wilmington's downtown vacancy is the highest in the market at 28%.
Wilmington’s relative petiteness and unique business environment puts the city on a different clock from the rest of the country, Buccini said. He sees a cycle in which a new wealth of apartments and high-end restaurants feeds demand for a premium office market whose business is already gangbusters.
He’s planning to add even more new office space in the coming years, he said — a sentiment rarely heard these days in American cities.
So which vision is right? Is Wilmington a boomtown on the verge, or a city whose office market is hitting bottom after historic post-pandemic vacancy? Both, perhaps, are true. It’s complicated. Here are the big trends that are driving Wilmington’s office market, and maybe downtown’s future.
Bracebridge I, at 1100 N. King St., is one of two office buildings Bank of America is selling.
As with most cities around the country, Wilmington saw a number of companies leave or downsize their offices after the pandemic began. This included magazine giant Conde Nast, who quietly emptied their financial operations out of 100,000 feet of office space at 1313 N. Market St., a location they’d occupied for years.
“Increases in office vacancy rates are not unique to our city,” said the city’s economic development director, Sean Park. “They are part of a broader economic trend that cities across the nation are navigating post-pandemic.”
If Wilmington’s office vacancy seems unusually high, said observers, it’s the result of a situation that predates the acute crisis of the pandemic.
It is, in part, a downstream holdover from the days when Wilmington was dominated by the massive office campuses built by corporate titans like DuPont and former local banking giant MBNA, now absorbed into Bank of America.
How the city has used, or not used, those vast tracts of office space has defined much of its fortunes since the late 1990s, whether that’s meant ambitious upgrades, conversions to apartments and hotels or legacy office space that's sat vacant for years. In a small city, said Wilmington development czar Park, even a few empty buildings can make the vacancy rate look alarming.
“Given the relatively small size of Wilmington's office inventory, one large business moving out of the City can have an inordinate effect on the vacancy rate,” Park said. “Wilmington’s largest increase in the office vacancy rate actually came before 2020, when Bank of America moved out of the Bracebridge buildings in late 2018.”
The two mammoth Bracebridge buildings facing each other across French Street, at 11th Street, have sat empty ever since. All by themselves, their fallow 500,000 square feet of office space helped precipitate a year-over-year jump in Wilmington's office vacancy from 18% to 26% in 2018, Park noted, citing figures from CBRE.
Those buildings are difficult to rent in the current market, said Wills Elliman, senior managing director at Newmark’s Wilmington office. Corporate clients are looking for newer and leaner spaces these days, he said. Bracebridge is best suited for the massive footprint of a large corporate headquarters, a white whale that has so far eluded all who've attempted to land it.
The Wilmington Trust building on H.B. DuPont Plaza at 11th and Washington Streets in Wilmington, Thursday, March 22, 2012.
Another legacy property. Wilmington Trust Plaza at 301 W. 11th St., was vacated first in 2012 by its namesake bank and then in 2017 by Capital One. The building accounts for another 300,000 square feet of empty space, Elliman notes.
Those three buildings together account for more than 10% of the central business district office space in Wilmington, and a massive portion of the city’s vacancy, said Elliman. Take them out of the equation, and the picture looks a lot rosier.
So does the future, according to the year-end reports. The pandemic-era shedding of office space finally appears to have mostly abated by the last quarter of 2023, said John Kaczowka, senior vice president of real estate company CBRE.
That’s because the fundamentals of the market are stabilizing, he said, and new tenants are signing long-term leases again. These are strong signals that the market is turning a corner.
“I’m calling the bottom for Wilmington,” said Elliman at Newmark, with a bit more flair for drama.
His company’s report, which tracks slightly different buildings than CBRE's, showed that vacancy in the central business district had dropped slightly in 2023’s final quarter — the first time this had happened since before the pandemic.
The 'flight to quality'
The ground floor of Buccini Pollin Group's 1000 N West building, better known as the Brandywine Building, offers amenities such as collaborative spaces and stadium seeting for video screenings.
Not all office space is created equal. Both Newmark’s and CBRE’s reports stress that vacancies are concentrated in older buildings that have not been outfitted with newer amenities demanded by the new generation of corporate clients. This may not change soon.
The office market is seeing a "flight to quality" according to the analysts, a poetic bit of real estate jargon that means older offices can't compete with fancy food halls and screening rooms.
“The key is, if you've got a Class B or Class C building, you're toast,” said BPG’s Chris Buccini.
A 50-year-old, 300,000-square-foot office building at 300 Delaware Ave., which stands at 50% vacancy, may indeed be toast as an office building, its owners say. Its Pennsylvania owner, Brandywine Realty Trust, told the Philadelphia Business Journal in early February that the company is exploring converting it into residences after failing to find tenants for the other half of the building.
But premium Class A office space in Wilmington, like spaces managed by BPG, is doing fast business. Just 13% of office space in the Wilmington market was constructed in the past 20 years, according to Elliman's figures.
New or newly renovated buildings have been filling with some of the biggest law firms and banks and insurance companies around the country — an economic environment fueled by Delaware’s unique position as home to the incorporation papers of two-thirds of the Fortune 500 companies in America.
“A lot of companies that are in Delaware are national companies, but they're here with a smaller-size footprint,” said CBRE’s Kaczowka.
These companies prioritize attracting and retaining talent, Buccini said — especially in a tight national labor market where unemployment has hovered below 4% since 2022.
Many of these companies are looking for less square footage these days, he said. But they're more than willing to pay top dollar for impressive space filled with attractive amenities.
To bring in talent, offices now need to become destinations, live-work-play environments that give people a reason to leave home, Buccini said. The result is what looks from the outside like an arms race for the most impressive amenities among the highest-end buildings in Wilmington.
Buccini pooh-poohs this notion. He doesn’t think other high-end office spaces in town are in competition. After all, his flagship Brandywine office building at 1000 N. West St. is “the best building in the market,” he said.
The Brandywine features a communal big-screen theater with cushioned seats, grab-and-go food, and a host of shared spaces that range from private nooks to hangout areas to a stately and long-tabled room for board meetings .
To make the office even more attractive to commuters from Philadelphia — and the top-flight tenants who’d like to attract them — BPG spent $110,000 on a Silicon-Valley-style shuttle bus that runs an endless 0.8-mile loop from BPG’s Market West campus to the SEPTA station, ready to be there waiting when a tenant or client arrives.
But if you go down the street to the former Hercules building at 1313 N. Market St., Scott Johnson, founder of investment and management company Johnson Commercial Real Estate, says much the same as Buccini: There’s no competition between Hercules and others on the market.
The two buildings Johnson manages are almost the only true Class A office space on the market, he says.
The former Hercules boasts a food hall on its bottom floor serving late-working lawyers till 10 p.m., game rooms that will soon include TopGolf simulators, screening rooms showing independent cinema and a sun-filled central column that funnels natural light to arrays of plants girding each floor, all overlooking the rolling greenery of parklands along Brandywine Creek.
That building is still recovering from the massive pandemic-era departure of Conde Nast, he said. But it’s come back from a nadir of below 50% occupancy to two-thirds full, and plans to convert some of its space into a boutique hotel for visiting corporate attorneys.
Down the street, the other building he leases and manages, the tallest building in Wilmington at 1201 N. Market St., is more than 80% occupied. Here, a unique offering has made this building attractive to companies geared toward tech and data security, Johnson said: a so-called “meet-me room” rare in cities the size of Wilmington.
The lobby at the 1201 N. Market St. office building, the tallest building in Wilmington. The building is home to a "meet-me room" that provides secure data access, an amenity usually only found in the largest United States cities.
A meet-me room is a dense nerve-tangle of the Internet, a secure meeting point for the Internet’s many carriers. The one at 1201 N. Market is essentially Delaware's on-ramp to the dense fiber backbone of the Internet that runs from D.C. to New York.
On a secure floor where we were forbidden from taking pictures, a company called DaSTOR keeps row after row of water-chilled data banks at precisely 67 degrees, coolly guarding the confidential information of clients who cannot be named: government agencies and hospitals and law firms.
If you use the cloud in Delaware, one way or another it's likely your data will flow through the cables here, said the company’s cloud services manager, Bryan Durr.
Meet-me room aside, there can sometimes be a me-too quality to these new office renovations. The Chancery, the food hall on the bottom floor of the Hercules building, followed on the heels of BPG’s DE.CO food hall at the DuPont Building. Space after space, including BPG’s Brandywine, has followed a Silicon Valley-style template of collaborative spaces and standing desks.
The same goes for JPMorgan Chase’s building on Walnut Street, which announced its own open-format overhaul in January 2023. The Riverfront office of Barclays Bank went the same way, throwing in sofas and armchairs alongside standing desks.
Oh, and also there are the in-house gyms. With showers. Hercules has one of those, too.
Wilmington's The Mill expands to become the largest co-working office space in the region
Another bright spot in the downtown Wilmington office market might be considered surprising, given the well-publicized collapse and bankruptcy of co-working company WeWork in November. On Feb. 13, The Mill co-working space in the former Nemours building unveils an ambitious expansion, taking over the building’s third floor.
The expansion, at what BPG is now calling the Market West campus, brings the footprint of The Mill’s downtown office to 104,700 square feet. This makes it the largest coworking office space in the Philadelphia area, founder Robert Herrera believes. (A laboratory coworking space in Philadelphia is larger, said Herrera.)
The years after the pandemic, while the bane of traditional offices, have been a boon for coworking spaces like The Mill, said Herrera.
Once considered the province of tech startups with inscrutable names, coworking has in recent years entered the mainstream as an option for smaller offices, Herrera said. The Mill's tenants include finance companies and venture-capital companies, and has seen companies grow there from small shared spaces to larger suites.
But especially during the pandemic, coworking space fulfilled two important needs for companies trying to respond to the new demands of a post-pandemic world, he said.
Spaces like The Mill allow companies to lower their physical footprint — especially if employees come in only a few days a week while working remotely other days — without losing access to the amenities offered by larger offices.
These amenities include large meeting rooms and client meeting rooms, shared collaborative spaces, networked teleconferencing rooms with cameras and large screens, the obligatory foosball table and even a “podcasting room” that allows companies to film corporate messaging.
Robert Herrera (left), Founder of The Mill, and Rebecca Parsons, Director of Operations in the new workspace area on Wednesday January 24, 2024.
But also, said Herrera, the spaces offer a sense of re-connection for office workers who felt isolated during the Zoom-filled days of the pandemic.
The Mill's previous space was already fully occupied. The new offices on the third floor were already beginning to fill up weeks before the ribbon-cutting, including a new location for public-private economic development company Delaware Prosperity Partnership.
“I would say we're like 30% occupancy, and nobody's actually walked in here yet,” said Herrera in mid-January. “They’ll move pretty fast when people actually see them.”
Office conversions create another tentpole for Wilmington's downtown
Office vacancy, perhaps, is not as important as it once was to the fortunes of downtown Wilmington.
Starting in 1999, BPG and then other developers began to turn obsolete offices into hotels and apartments. All told, BPG has added more than 3,000 new apartments in Wilmington since first buying the former Nemours building in 1999, apartments that BPG senior vice president Michael Hare told us in October attract a large number of new Wilmington residents.
Late-day sun plays across the multi-faceted Nemours Building. It is being partly remodeled from offices to luxury residential by Buccini/Pollin Group and rebranded as Market West.
Of these new apartments, about 1,200 were former office space, whether a ground-up renovation of the former Concord Office Park, or traditional conversions at the former Nemours building, 101 DuPont Place and multiple buildings along Market Street.
Meanwhile, Pennsylvania developer The Westover Companies has turned a 14-story office tower at 901 N. Market St. into apartments last year. A building at 913 N. Market St. has long been slated for the same treatment.
In part, converting obsolete offices helps “right-size” the office market, in Elliman's words, and find uses for buildings that were otherwise hard to rent.
But observers also say the new downtown residents have helped Wilmington avoid what cities like San Francisco have faced since the pandemic: a so-called “doom loop” where office vacancies lead to storefront closures as fewer office workers shop and eat downtown, which then further encourages more businesses to leave.
Instead of a "doom loop," Buccini describes a virtuous cycle in Wilmington.
“The residents generate demand for all the retail — the food, the beverage — which lets us have much better offerings than we would otherwise have if we didn't have the residents,” he said.
The dining room at Le Cavalier in Wilmington.
Those offerings, such as restaurants Bardea and Le Cavalier, are then recruitment tools for prospective tenants at downtown offices who want to lure in top employees. Employers, in turn, bring more residents and workers with money to spend on nice restaurants.
The new density of residents afforded by office conversions “increases the foot traffic to support local businesses, attracts new residents that can contribute to the city wage tax revenue, and increases the available local workforce,” wrote economic development director Park in response to inquiries.
Even as office vacancy increased to record levels, wage tax revenues — and thus total incomes in the city — are again on the rise.
Wage tax revenues from Wilmington residents and workers clocked in at $61.6 million in 2019. The pandemic temporarily tanked these figures, but by 2022, the city had already surpassed that number. As of last year, unaudited wage tax receipts were up to $66.6 million.
To compete, developers outside Wilmington are building a similar live-work-play model in expansive, self-contained projects, said CBRE’s Kaczowka. He cites in particular large mixed-use projects like Barley Mill Plaza in Greenville and Delle Donne’s Avenue North mixed-use project north of Wilmington at the former AstraZeneca campus.
The Tower at Avenue North had nearly reached its full height in late August 2023 as construction on the 12-story office structure along Concord Pike continues. It will join the Wells Fargo Tower as two standouts standing above the suburban skyline looking down on the taller buildings of downtown Wilmington.
That’s had some success, he said. Barley Mill — whose office space will sit next to a Wegmans, a yoga studio and several restaurants — has lured in investment banking company Morgan Stanley, said Kaczowka.
New office projects in the pipeline for Wilmington
Real estate professionals and developers have good reason to tout the attractiveness of office space, or the success of their investments, of course.
“It sounds like I'm just being the optimistic developer," Buccini acknowledged, noting it will be years before the market stabilizes after the erratic swings of the pandemic. But as developers keep converting old office space to hotels and apartments, and premium office space begins to fill, Buccini may soon have to put his money where his mouth is.
Amid the region's highest vacancy, he's looking to build more premium office space.
"We're running out of space downtown in our four buildings," Buccini said. "We have plans for two new office buildings. Brand new office buildings."
One project is in the planning stages, he said, as part of the $100 million Riverfront East project under development across the Christina River. One, he says, he can't yet reveal.
But if the second plan comes to pass, it may be something Wilmington has not seen in quite some time — a big new office building downtown.
Matthew Korfhage is business and development reporter in the Delaware region covering all the things that touch land and money. A longtime food writer, he also tends to turn up with stories about tacos, oysters and beer. Send tips and insults to mkorfhage@gannett.com.
