New Analysis shows vacancy in Downtown Wilmington’s trophy office buildings much lower than rest of downtown market
Wilmington, DE–May 12, 2016— A flight to quality is upending office markets across the country, and Wilmington is emblematic of the trend. Despite generally soft office market fundamentals, new analysis by CBRE Research shows vacancy in Downtown Wilmington’s trophy office buildings sits at 8.2%, versus a vacancy rate of 25.4% for the rest of the downtown market.
Just as interesting, the average full service asking rate per sq. ft. for Downtown Wilmington trophy space was $32.65 in Q1 2016, on par with the trophy class of Suburban Philadelphia (8.4%, $32.97 per sq. ft.) and not far below trophy buildings in Philadelphia’s CBD (5.2%, $34.96 per sq. ft.).
The flight to quality has become more intense over the last two years. The vacancy rate in trophy offices dropped significantly between Q4 2013 and Q1 2016, while vacancy in the rest of the market continued to rise. The disparity in market fundamentals between the trophy buildings in the Wilmington CBD and the rest of the market is more extreme than what we have observed in the suburbs and CBD of Philadelphia. In the Philadelphia office markets, though a similar disparity in market fundamentals between trophy offices and the rest of the market exists, there has at least been discernable improvement in the “rest of the market,” unlike in Wilmington.
“Users of office space are shifting their presence to trophy buildings for several reasons,” said Ian Anderson, CBRE’s Director of Research. “Technology and workplace efficiencies have reduced the amount of space required to conduct business and, consequently, enabled some organizations to afford the higher rents.”
The race for labor is driving employers to trophy office buildings as well. “Many employers are realizing, in order to attract the best and brightest, they need to offer the shiniest and best-located workplace. As a result, markets across the region and the country see an increasing gap between the top buildings in the market and the remaining product. Wilmington has joined the multitude of markets where commodity office product has frequently become outdated and undesirable,” Anderson added.
As more young professionals – that is, the future supply of labor talent -- choose to live in cities versus the suburbs, an urban core like Downtown Wilmington benefits. Demand for residential apartments and retail services increases, which is evidenced by the spectacular renaissance along Market Street. Ultimately, these trends support demand for top-quality office space as users seek live-work-play environments with amenities.
The flight to higher-quality, modern office space persists as many owners of older, outdated real estate convert to new uses. Top-tier buildings offering efficient design and abundant amenities should continue to be the first choice for companies seeking quality office space and desiring to retain and attract the best talent.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2015 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.