The office market in Wilmington seems to be faring better than in larger areas, commercial real estate brokers and market statistics show.
Despite some well-known Wilmington vacancy examples that include the 12-story Thermo Fisher Scientific Inc. building downtown and the former Verizon call center off Shipyard Boulevard, a recent CoStar Group report shows the area had a 2% office space vacancy rate in 2022 and the first quarter of 2023.
“Our vacancy rate has just stayed really low, with not a lot of supply coming on and the demand staying high post-pandemic,” said Lindsey Hess, senior vice president at Wilmington-based real estate firm Cape Fear Commercial. “It’s been interesting to see. Like Autumn Hall Building 3, for example – we have that fully pre-leased.”
The office buildings added over the past three years to Autumn Hall, a mixed-use development on East-wood Road in Wilmington, now hold Cape Fear Commercial itself, law firms, a bank, restaurants, a Starbucks and more. Planning for a fourth building is underway.
At 101 N. Third St. in downtown Wilmington, which was developed by Cape Fear Commercial and where leasing is led by Hess, tenants have completely filled vacancies in the past six months. The two newest tenants in the five-story building are Sonic Systems, a company that supports the nuclear energy industry, which leased more than 6,200 square feet on the fourth floor, and law firm Cordell & Cordell, which has more than 3,200 square feet on the fifth floor.
One of the differences between Wilmington and larger markets such as the Raleigh area, where CBRE Research recently found a vacancy rate of 13%, is the average tenant size, Hess said.
“The larger software and technology companies really have kind of always had a hybrid work environment,” she said. “Now they’ve switched to 100% remote and so there’s been massive vacancies occurring in metro areas of the larger markets in our state and across the country, but we just don’t have that here.”
The Wilmington market tends to have more tenants that rely on client interaction, Hess said.
Hess herself, who has been employed by Cape Fear Commercial for more than 15 years, prefers working in the firm’s office.
“I think most people in our market feel like there’s a benefit to being in the office for socialization and collaboration,” she said.
Hess is working with Wilmington office developers Steve and Parker Anderson on filling a planned office and retail building at Waterford in Leland, where she said the group has interest from a couple of larger-sized office tenants.
Hess and Bryce Morrison of Cape Fear Commercial partnered at the end of last year with Wilmington-based SAMM Properties on The Offices & Shoppes of Waterford, 2040 Olde Regent Way next to the Waterford Harris Teeter.
The complex will have two, 38,000-square-foot buildings. The first of its three floors will feature high-end retail with an outdoor patio, while the second and third floors will be designed as Class-A office/medical space, according to marketing materials. The buildings also include potential restaurant spaces with room for outdoor seating.
Some real estate industry professionals expect office development to slow. That slowdown will further limit supply, said Cal Morgan, a real estate appraiser and owner of JC Morgan Co., adding that as the market continues to grow in Wilmington, demand should increase here. Articles examining office exoduses are mainly focused on some of the largest metro areas, such as New York and Los Angeles.
“It will probably impact us less here because we have many more smaller businesses that need the office space and don’t swell, don’t have more office space than they need,” Morgan said.
As far as office investors are concerned, rising interest rates are having more of an impact on sales than vacancy rates, he said.
“If you are buying an office building as an owner-occupied user, you will get better lending terms, and if you’re an investor buying a multi-tenant building, say to lease it out, the interest rate will be much higher when compared to the last 10 years,” Morgan said. “So it has reduced the number of transactions. Further, banks are less eager to lend on those properties.”
In downtown Wilmington, more office space could be on the market soon. On Feb. 21, the Wilmington City Council approved a resolution to declare nine city-owned properties downtown as surplus “contingent on the possible purchase of the Thermo Fisher campus (North Front Street campus).”
Buying the Thermo Fisher building, the city’s tallest structure erected to serve as the headquarters of Wilmington-founded pharma firm PPD, would enable the city to consolidate offices now spread across downtown and in need of millions in renovations. The buildings the city could sell include these existing offices.
The recap, on the city’s website, stated, “Declaring the properties as surplus now would enable staff to begin initiating certain divestiture processes and would enhance the City’s financial position, both before and after the proposed acquisition of the North Front Street campus.”
If the city does buy the Thermo Fisher property, the floors not used for government offices could be rent-ed to other tenants.
During a meeting in January in response to a city councilman’s question about interest in that potential residual space, Deputy City Manager Chad McEwen said, “We’ve actually already received some interest. Obviously interest doesn’t pay bills, but we have had phone calls and interest in those residual floors that will be available and we certainly will engage public as well as private entities that may be interested in securing space.”
Morgan said the prospects of buy-er interest for office buildings that become available downtown are high.
He said, “Whenever a quality multi-tenant property hits the market in Wilmington, it’s gobbled up pretty quickly due to the limited supply in our market.”