Office Snapshot Q1 2014
Pittsburgh’s economic review is mixed as average wage increases continue to outpace the state and national averages while job growth has plateaued. Unemployment fell to5.8% in the Q1 2014, 1.7% lower than one year prior. Wages within the region grew 13% from 2009 to 2013, more than double the growth in Pennsylvania and much more than the national average of 1.5%, as reported by the Federal Reserve Bank of Cleveland. The increase can be largely attributed to the region’s “eds and meds” culture and the explosion of the shale industry.
Though it was named the fifth fastest-growing start-up hub in the U.S. by RJ Metrics, Pittsburgh was last in job growth among its peer benchmarked regions in March, losing 5,400 jobs over the previous12-month period. However, Carnegie Mellon University’s plan to spinout 36 new companies in 2014, many of which will remain in Pittsburgh, should improve the region’s standings and help to boost occupancy rates throughout the region.
SUBURBAN OFFICE CONSTRUCTION BOOMING
With a direct vacancy rate of just 8.5%, the suburban office market is poised for new construction and local developers are delivering. In Oakland, site work has begun on The Elmhurst Group’s Schenley Place, a 105,000-square foot (sf) medical/office building situated near the Carnegie Mellon and University of Pittsburgh campuses. Walnut Capital broke ground on its $120-million Bakery Square 2.0 in nearby East Liberty. The first phase of the project includes 218,000 square feet (sf) of office space over six floors. Google, Inc. already has leased68,588 sf in the new building bringing its total occupancy in the complex to more than 425,000 sf. Over 600,000 sf of new construction is underway in Southpointe II, with more than half of the new space committed to tenants Ansys, Noble Energy and Rice Energy. In Cranberry Township, Butler County, Sampson Morris Group is planning a 125,645-sf mixed-use project called Ehrman Square; Sippel Industries plans to add a 190,000-sf office building adjacent to the new Pittsburgh Penguins/UPMC Sports Medicine facility; and, Chaska Properties is proposing another 100,000 sf at Cranberry Business Park.
CLASS A VACANCY DIPS BELOW 6.0% IN CBD
Though the direct vacancy rate for all classes of space in the CBD ended Q1 2014 at 9.8%, class A vacancy stood at just 5.7% signaling the probability of rising rental rates throughout 2014. The current average asking rent for class A is $25.64 psf with the premier buildings asking $29.00 to $32.00 psf on a five-year deal. Though a few pockets of class A space have opened over the past 12 months as a result of corporate restructuring, many have been quickly absorbed by new and expanding tenants in the market. UPMC Health Plan announced its plans to move 450 employees from One Chatham Center to 140,000 sf at Heinz 57 Center, assuming a portion of the Heinz sublease through its expiration in 2026.
Recently ranked Fifth Most Resilient City in the World by Grosvenor Research, Pittsburgh’s leasing activity should remain ahead of 2013with steady increases in rental rates across all classes. Capital markets activity should surpass the annual totals of the past few years.View Attachment