Industrial Snapshot Q1 2014

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ECONOMIC OVERVIEW

Pittsburgh’s technology industry experienced significant job growth across six of its main sectors over the past 24 months. Materials, energy, environment, life science and information technology achieved the highest growth with many of them also seeing double-digit increases in payroll and/or wages, according to the Pittsburgh Technology Council. University research and development is the key driver for this growth, with more than $1.4 billion invested in the region in 2012. Overall annual wages in the region rose 13% from 2009 to 2013, driven largely by the booming shale industry where wages for oil and gas workers increased 63.7% from 2007 to 2012. Unfortunately, Pittsburgh ranked last in overall job growth among its benchmarked regions, losing 5,400 jobs between March 2013 and March 2014. Manufacturing led the decline at 2.8% as the sector continues to struggle to compete with foreign entities entering the market.

FOOD SERVICES DRIVE NEW CONSTRUCTION

The food service/logistics sector currently is driving new build-to-suit construction within the industrial market. Among the latest projects are: Gordon Foods’ 450,000-square foot (sf) distribution center in Findlay Business Park, Airport Corridor; and, Paragon Foods new $12 million facility in Pittsburgh’s Lawrenceville neighborhood. In addition, Aldi is in the permit process for a 110,000-sf expansion of its 500,000-sf distribution warehouse at Victory Business Park in Butler County.

Hormann High Performance Doors, a German company with a manufacturing presence in Pittsburgh since 1981, has moved from its previous location at Leetsdale Industrial Park to a new state-of-the-art facility at Starpointe Business Park, Washington County. The 68,000-sf plant includes a production floor, showroom and offices. Despite the loss of Hormann, Leetsdale Industrial Park will welcome a new tenant within the year. Chapman Properties, the developer responsible for Leetsdale, has reached agreement with National Oilwell Varco for the construction of a 27,000-sf build-to-suit facility where the company plans to service its field equipment.

RENTAL RATES INCREASE ACROSS ALL SECTORS

The industrial market continued to post increases in rental rates across all sectors, with an overall increase of 32.5% year-over-year in Q1 2014. The warehouse sector saw an increase of 7.4% ending the quarter at $5.11 per square foot (psf) triple net, while the flex market increased 3.1% over the previous year to $11.80 psf triple net. With a vacancy rate under 8%, the warehouse sector saw a substantial decrease in leasing activity, posting 221,174 square feet (sf) for the quarter, a 55% drop from 2013. Direct absorption was up 106% over 2013, posting a positive 518,250 sf at the conclusion of Q12014.

OUTLOOK

Construction activity within the market is on pace with 2013 and new deliveries should relieve some demand for users in the 50,000 sf to 100,000 sf range; however, very few options currently exist for the several users with 100,000-sf or larger requirements currently surveying the market. Rental rates for large distribution facilities will undoubtedly increase in response to the lack of availabilities.

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Author: Grant Street Associates

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