Office market picking up, while multifamily ‘on fire’

By Kathy Canavan
Special to Delaware Business Times

Delaware’s commercial real estate market looked good in the third quarter, with even the lagging office market beginning to pick up, according to John Kaczowka, senior vice president for CBRE.

“There’s definitely an appetite for real estate with a lot of buyers. There’s a lot of money in the market chasing real estate,” said Kaczowka, who follows the Delaware market. “Multifamily is on fire. The industrial market, the warehouse market, is going gangbusters. The retail sector is going super strong. The office market is now starting to pick up, so that’s headed in the right direction. In a nutshell, things are all trending in an upward direction.”

A larger pool of investors is looking to come into the Delaware marketplace, Kaczowka said. That competition, plus scarcity in some segments, is beginning to drive prices up.

“We’re seeing out-of-state buyers now who are pursuing real estate in Delaware. They feel like there’s a value opportunity here. In the entire corridor from Boston to D.C., all those markets are strong. Delaware is recovering, and I think out-of-state buyers feel there’s an opportunity here to create value that they can’t get with the real estate in their own markets,” Kaczowka said. “What it really comes down to is the quality
of the real estate. People are looking for good-quality real estate at a good price.”

Kaczowka said some of the first large properties that sold were affordable either because their market niche was soft at that point or because one of the corporations was selling off excess real estate. Once buyers were attracted by one Delaware property, they came back to look at others.

“We have some buyers that looked at the marketplace before and maybe didn’t win a bid on a property. Now they are focused on the state and trying to purchase real estate here. We’re getting buyers inside and outside of Delaware,” he said.

Kaczowka called the multifamily segment “red hot.”

“At some point it’s going to become overbuilt, just like everything else, but, right now, you build it and they’re filling it up,” he said. “The apartment market is doing great. It’s doing very well in the City of Wilmington. We’re seeing a lot of demand for apartments, and developers are still looking at properties they can covert to residential.”

There’s also lots of demand for co-working spaces like The Mill, the Orange Street shared-space environment, he said.

While more people are working from home and desk space has shrunk, Kaczowka said many companies are still leasing large spaces: “The days of the big corner office are over, even for the law firms. The work space is smaller, but then they’re adding more space for collaborative environments. You might have a smaller desk, but, now, you have space where you can meet in small pods. They’re still using the space, but in a different way.”

He said amenities drive the office-space market. Companies are seeking amenity-rich buildings with attractive space, maybe a fitness center or a grab-and-go café and maybe retail spaces under the same roof. “They’re looking for space that’s bright and airy. They want places where you can walk or bike to work. They’re asking what people can do after hours or when they go to lunch,” he said.

Kaczowka said Delaware has a severe shortage of warehouse/manufacturing space, but it is a natural for manufacturing due to its position on the Boston-D.C. corridor and its easy rail and interstate access. “The industrial market is tight and some of these sites – like the old GM site and space in Middletown – could support it,” he said.

He gave props to the Delaware Prosperity Partnership that now leads the state’s economic development efforts. “We’re seeing the State of Delaware being more aggressive pursuing tenants through the Delaware Prosperity Partnership. They’re going out trying to retain companies and attract companies,”he said.

He said Greenville is still the No. 1 preferred area for offices in the suburbs, followed by North Wilmington. He said high-density users such as call centers often concentrate south of Wilmington.

While foreign investment is going to Philadelphia sites such as The Navy Yard, Delaware is seeing more U.S.-based investors, he said.

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