Office Snapshot – Q3 2015
The seven-county Pittsburgh Metropolitan Statistical Area (MSA) grew by 14,900 jobs between September 2014 and September 2015. Education and health services, leisure and hospitality and retail trade led the growth sectors, while manufacturing and transportation continued to post losses. Average weekly wages experienced the largest increase of all benchmarked regions, jumping 5.7% year-over-year, and unemployment dropped 0.2 percentage point (pp) during the same period, remaining consistent with the national average.
Pittsburgh’s sublease market suffered a significant blow in Q3 2015 with the announcement of several major corporate acquisitions and subsequent office relocations. Sublease space year-over-year increased 86.4% to nearly 1.0 million square feet (msf) at the close of the quarter. Class A sublease spaces are in competition with vacant class B space with asking rates in the range of $17.85 to $18.67 per square foot (psf). Among the more prominent spaces to return to market are Del Monte Center – 103,745 square feet (sf) on the North Shore vacated by Big Heart Pet Brands after it was acquired by J. M. Smucker company; Westpointe Corporate Center I in the Parkway West – 97,502 sf vacated by Chevron Corp. for an office consolidation in nearby Cherrington Corporate Park; the Union Trust Building, Downtown – 92,011 sf of space vacated by Siemens; and 1001 Consol Drive, Southpointe – 75,000 sf vacated by Fairmont Supply Co. when it was sold and relocated to another market.
Direct office vacancy year-over-year rose 0.9 pp to 9.4% in Q3 2015, while asking rental rates dropped 7.7% to $18.63 psf from $ 20.18 psf. YTD construction completions lag 2014 by nearly 53% at 489,267 sf.
The continuing uncertainty within the energy sector coupled with a healthy climate for corporate mergers and acquisitions will remain constant factors in Pittsburgh’s commercial real estate market over the next 12 to 24 months. Though the region has experienced a 120% increase in investment sales year-over-year, the number of large blocks of available space, particularly in the CBD, is on the rise as well. Tenants previously considering relocations or build-to-suit projects may change course and opt for renewals or expansions in their current facilities. Expect rental rates to stagnate and a shift from a landlord-driven market to one more sided toward the tenant in 2016.View Attachment