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Wednesday, October 22, 2014

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Cascade: No. 63, Fall 2006

New Office Buildings Are Underway in Wilmington, But Will Demand Match Supply?

A boom in new office buildings in the downtown and riverfront areas of Wilmington is contributing to the climate of revitalization in the city. In major construction projects underway:

  • The Wilmington Savings Fund Society (WSFS) will be the lead tenant and a minority owner in a 371,000-square-foot 16-story glass tower being constructed by the Buccini/Pollin Group.
  • Barclays Bank plans to have about 900 jobs in a riverfront building under construction.
  • BlueCross BlueShield of Delaware is consolidating its operations and 700-employee workforce from five locations in New Castle County to a 170,000-square-foot downtown building under construction.
  • The Commonwealth Group is developing The Renaissance Center, a 150,000-square-foot office building and garage.

About 35,000 people work in office buildings in Wilmington, according to city estimates. Many office jobs are provided in Wilmington by limited- purpose and wholesale banks,* full-service banks, other corporations, and law firms. MBNA’s decision in the mid-1990s to relocate 3,000 jobs into downtown Wilmington was an important stimulus at an early stage of the city’s revitalization.

However, a report from Moody’s Investors Service warns that the supply of office space in the city far exceeds expected demand. Moody’s produces quarterly Red-Yellow-Green™ reports that reflect its assessment of the next year’s expected demand and supply for seven property types in about 55 cities. It uses this assessment to rate new commercial mortgage-backed securities and to monitor existing ones.

ING Bank, also known as ING DIRECT, renovated this building, which was built in 1904 and served as the headquarters for the Delaware division of the Pennsylvania Railroad. The building was designed by architect Frank Furness and is listed on the National Register of Historic Places. The bank has 850 employees in four buildings in Wilmington’s downtown and riverfront areas.ING Bank, also known as ING DIRECT, renovated this building, which was built in 1904 and served as the headquarters for the Delaware division of the Pennsylvania Railroad. The building was designed by architect Frank Furness and is listed on the National Register of Historic Places. The bank has 850 employees in four buildings in Wilmington’s downtown and riverfront areas.

The Red-Yellow-Green reports for the first and second quarters of 2006 listed the office market in Wilmington’s central business district (CBD) in its highest-concern red zone, signifying “supply significantly greater than demand or supply growth alone very high.” In addition, the first-quarter report listed the Wilmington suburban office market in its highest-concern red zone, while the subsequent report showed some improvement, although still in the red zone.

The second-quarter report noted that Wilmington was one of only three office markets nationwide that had red scores in both its CBD and suburban segments. It said: “Although construction is expected to slow and absorption to improve in Wilmington compared to last quarter, the degree of the remaining supply-demand imbalance continues to be worrisome.”

Sally Gordon, senior vice president of Moody’s Investors Service and author of the reports, said that data for Wilmington’s CBD indicated a healthy level of demand but also excessive supply. She said that Wilmington’s CBD is statistically a small market and therefore the data are relatively “volatile,” adding that Wilmington’s real estate market score includes “expectations” of job layoffs resulting from Bank of America’s acquisition of MBNA.

City officials are optimistic about Wilmington’s ability to absorb the additional office space. They note that financial services employers and law firms continue to add jobs.

  • * Limited-purpose and wholesale banks established operations in Wilmington and other Delaware locations following passage of the Financial Center Development Act of 1981.