New Office Spaces May Produce
A Real-Estate Glut in Wilmington

Just 30 miles south of Philadelphia, four office buildings are under construction in downtown Wilmington. The question: How quickly can all that space be filled, particularly as one of the region's largest private employers is shedding some of its real estate following an acquisition.

Wilmington's downtown office market earned the weakest ranking of the 46 U.S. city-center business districts surveyed by Moody's Investors Service. The Moody's report was based on fourth-quarter data and an estimated new supply for this year of 12.4% of existing space, outstripping an expected rise in demand of 1% of the fourth-quarter inventory.

The four downtown buildings will add an estimated 927,000 square feet, according to John Q. Birmingham, director of Cushman & Wakefield of Delaware Inc.

The 250,000-square-foot Christina Crescent, now under construction in Wilmington's riverfront neighborhood, is one of four office projects under way in the city.

While more than two-thirds of that space has been preleased, smaller markets like Wilmington tend to be more volatile because a few new buildings can quickly cause a glut. "It'll take some time to eat through the delivery of new space," says Sally Gordon, a senior vice president at Moody's.

The report also says the Wilmington region's suburban office market tied with Las Vegas's suburbs as the weakest in the country out of 52 markets, based on an expected drop in demand in the area, which spans three states and includes New Castle County, Del., home to Wilmington; Salem County, N.J., and Cecil County, Md.

Delaware and Wilmington were dealt a blow when Bank of America Corp., based in Charlotte, N.C., acquired MBNA Corp., based in Wilmington, in January and said it was selling four buildings in Delaware and terminating leases on three other properties. In Wilmington, the bank is selling a vacant former courthouse and a 74,000-square-foot office building.

To be sure, the effect of the merger could have been much worse. "There was a concern that more space would have gone on the market and that we would have lost more jobs," says Stan Soja, director of economic development for the city of Wilmington.

Bank of America will still own and occupy about 1.1 million square feet of office space in downtown Wilmington as well as other properties outside the city, and says it will continue to be a major employer in Delaware, where its Bank of America Card Services has its headquarters.

Ms. Gordon of Moody's agrees that low-ranked markets still can offer good investment opportunities and that Wilmington is likely to be viewed more favorably in the next quarterly ranking as the effect of MBNA's sale has been less severe than originally expected.

Boosters of the Wilmington market add that the construction provides sorely needed large blocks of space for expanding and relocating companies such as automobile club AAA Mid-Atlantic, which recently moved its headquarters to the revitalized Wilmington riverfront from Philadelphia. Just three years ago, Wilmington had no large blocks of space to offer companies, says Judy McKinney-Cherry, director of Delaware's Economic Development Office.

Delaware and New Castle County -- home to more than half of the state's 843,500 residents -- historically has attracted an outsize number of businesses given its small size, in part because of a business-friendly judicial system that encourages companies to incorporate in Delaware and drives a strong legal sector. In addition, the state attracted financial companies after passing the 1981 Financial Center Development Act, which took the cap off interest rates that credit-card companies located in the state could charge. Employment in the county rose 2.1% in March, outpacing the national rate of 1.6%, according to the Bureau of Labor Statistics.

The area's job growth has pushed developers like Buccini/Pollin Group, a private real-estate developer with headquarters in Wilmington and Washington, D.C., to build. Robert E. Buccini, managing partner of Buccini/Pollin, says the company has leased much of the space in a 371,000-square-foot office building under construction in downtown Wilmington to such tenants as WSFS Financial Corp. Says Mr. Buccini: "Financial services and the business of law have exploded in Wilmington."

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