Announcements by the Fed regarding monetary policy changes, bank failures, and elevated interest rates have caused many commercial developers and investors to pause and reevaluate their paths going forward. Excluding the office sector, market fundamentals of occupancy and rent growth have been good in most property sectors. However, the current market is full of uncertainty as it relates to fears of a looming recession, market volatility, rising debt financing costs and a rising tide of distressed commercial real estate.
Critical metrics of commercial real estate industry health include market liquidity and deal activity. Nationally, transaction activity of $5+ million is down 70 percent year-over-year. The local commercial real estate market is active, although sales activity has also slowed. Below is a snapshot of larger (i.e., over $5 million) commercial real estate sales located throughout Delaware that occurred from December 2022 through mid-June 2023. The stabilized investment sales below reflect in-place cap rates from 5.4 to 6.8 percent with a median of 6.1 percent.
- Bay City Mobile Home Community – is a 300 lot mobile home park with a marina on 187 acres located in Millsboro that sold in June for $42 million, or $140,000 per lot.
- The Former Promenade at Christiana – is 45.63 acres of CR zoned land that sold in May for $35.6 million, equivalent to $780,188 per acre.
- 955 River Road – is a 100,000 square foot warehouse on 6.67 acres zoned HI that sold in May for $8,000,000, or $80 per square foot.
- Lighthouse Hill Apartments – is a 153-unit garden-style apartment complex on 7.75-acres in Wilmington that sold in April for $21.5 million, or a $140,523 per unit.
- Former IKO Product Plant – is 13.15 acres zoned HI located on Hay Road in Wilmington that was improved with a 340,000 square foot single manufacturing plant that sold in March for $10.5 million.
- The Saville Apartments – is a 42-unit apartment in downtown Wilmington that sold in March for $10.5 million, or $250,000 per unit.
- Money Farm – is 134.95 acres of industrial land in Middletown that was approved for 1.53 million square feet of warehouse logistics space in two buildings. It sold in March for $12 million, or $88,922 per acre.
- The Poole Farm – is 15.7 acres in Middletown that was subdivided into seven commercial lots. It sold in February for $6,866,750, or $980,964 per lot or $274,670 per acre.
- 913-15 S. Heald Street & 904 Garasches Lane – are three industrial buildings totaling 95,050 square feet in Wilmington that sold in February $9.7 million or $102 per square foot.
- Wyndam Garden Hotel – this is the January sale of a 135-room hotel in Dover for $6.2 million, or $45,926/room
- Plantation Lakes – is 50.64 acres in Millsboro that sold to Beebe Hospital in January for $12 million, or $236,967/acre.
- 3901 Lancaster Pike – is a 48,662 square foot former ethnic grocery storage on 4.48 acres that old in January for $8 million, or $164 per square foot to the adjacent property owner.
- First State Plaza – located in Stanton is a 164,779 square foot grocery anchored community shopping center that was built in 1987 and renovated in 2012. It sold in December for $31.8 or $192.99 per square foot.
- The Pointe of Stoney Brook – is a 192-unit garden apartment complex on 15.33 acres in Seaford that sold in December for $34 million, equivalent to $177,083 per unit.
Signs point to slower growth over the remainder of 2023. Evolving monetary policy changes to stamp out inflation pressures from the labor market this late in the business cycle could lead us into a recession. This could be a good thing as it will help rebalance the supply chain, solidify market demand fundamentals, and tame inflation.
Any short-term price softening caused by the on-going period of price discovery will hopefully be offset by rent growth especially considering the lack of new market supply. As market clarity returns, compelling investment and development opportunities are expected to materialize.