Office Snapshot Q3 2014

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ECONOMIC OVERVIEW

Pittsburgh added another trophy to its figurative shelf in the Q3 2014 – Most Livable City in the Continental U.S. Economist Intelligence Unit’s 2014 study ranked the region first in the country and 30th in the world out of 140 global cities surveyed. Cities were rated on five categories that included stability, health care, culture and environment, education and infrastructure. In addition, Forbes named Pittsburgh third on its list of the top Opportunity Cites in America, weighing factors such as affordable housing, unemployment and population growth.

With an unemployment rate of just 5.7%, the region added 9,200 jobs over the past 12 months at the conclusion of the third quarter 2014. Though job growth in the region continues to trail benchmark cities around the country, the tech and R&D sectors are giving Pittsburgh a boost. Year-to-date investment in Pittsburgh start-ups nearly doubled the total for 2013, topping $104 million in Q3 2014, with more than 26 technology and life sciences companies receiving funding from private equity, economic development corporations and high net-worth individuals according to the MoneyTree Report produced by PriceWaterhouseCoopers, LLC and the National Venture Capital Association.

OFFICE LEASING ACTIVITY STALLS IN THIRD QUARTER

Despite strong evidence of recovery in Pittsburgh’s commercial market, leasing activity in Q3 2014 fell 3.5% year-over-year, logging only 454,381 square feet (sf) leased for the quarter – a difference of more than 45% over Q2 2014. Among the largest office leases of the quarter were:  Accredo Health’s 99,000-sf lease at Keystone Summit Corporate Park; EQT Production’s 30,000-sf lease at Zenith Ridge, Southpointe; CH2M Hill’s 30,000-sf lease at developer Burns & Scalo’s new 60,256-sf building in the Parkway West; and, Michael Baker International’s new 22,000-sf lease at BNY Mellon Center in the CBD. Michael Baker is moving a number of its executive staff from its buildings in the Airport Corridor to establish a Downtown Pittsburgh global headquarters for the company.

NEW CONSTRUCTION STARTS TOP 2013

Year-to-date new construction starts are up 38.7% over the same period in 2013. As lending institutions loosen the purse strings, Pittsburgh-area developers have returned to delivering new speculative space to the very tight market. Of the more than 2.0 million square feet (msf) of space under construction, 37.2% of it is being built on a speculative basis. Additionally, a number of new projects were announced in the third quarter. Among them, Oxford Development’s 350 Fifth Avenue, a 521,000-sf office building in the CBD and Merrill Stabile’s 600,000-sf North Shore office complex. Both developers are looking for anchor tenants to kick off construction.

OUTLOOK

Rental rates will continue a steady climb in response to the limited supply of larger blocks of quality office space. Leasing activity will fall short of 2013 totals while absorption should stabilize and remain positive in 2015.

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Author: Edie Hartman

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