Office Snapshot Q4 2014
Commercial real estate offers the most optimistic future in the region, according to the Federal Reserve’s Beige Book survey. Demand for business credit was strongest for commercial real estate and commercial and industrial loans, reflecting improved prospects for new and expanding offices in the metro. However, the volatile oil market could impact growth for the energy sector that has driven much of the leasing and development activity in Pittsburgh for the past decade.
Unemployment in the Q4 dropped to 4.8%, 1.5 percentage points (pp) lower than the same period 2013, and though the region fell in global rankings for economic and employment growth in 2014, United Van Lines reported that Pittsburgh was the only Pennsylvania metro where more people were moving in than out, with 58% of the company’s Pittsburgh business coming from inbound residents.
Tech companies grow more interested in CBD
In 2014, 79 companies raised $337.8 million in technology sector investments, an increase of 159% over 2013, according to PriceWaterhouseCoooper’s Money Tree Report. This influx of capital has enabled a number of start-ups to move out of incubator spaces and into prime office space – much of it in Pittsburgh’s Central Business District. TrueFit, a commercial app and software company, inked a deal to relocate its offices from Cranberry Township, north of the CBD, to the Union Trust Building, Downtown. The company will be joined by Jawbone, a San Francisco-based wearable tech company, occupying 30,000 square feet (sf) in the Flemish Gothic building. Neighboring tenants include AMEC Foster Wheeler’s global environmental sciences division and Novitas Solutions, an administrative processing firm. Davis Companies, who purchased the 546,200-sf building at sheriff’s sale in 2013, plans to convert the 10th and 11th floors to incubator space for emerging tech companies with the intent of creating a technology hub as part of its $35 million historic renovation of the building.
Tenant interest in Parkway West holds steady
With a current vacancy rate of 8.2%, the Parkway West submarket has seen more than 1.2 million sf of leasing activity in the past 24 months and a 4.6% increase in average asking rent. Most recently, Computer Associates finalized a lease for 25,000 sf at Foster Plaza, a move that will shift the company closer to the CBD and free space for Cabot Oil & Gas, who will move into 57,000 sf at 2000 Park Lane in Q1 2015. Cabot will relocate from Penn Center West. Walgreen’s has signed on for a $14 million, 86,000-sf build-to-suit to house its regional headquarters, where 300 employees in the fields of Human Resources, IT, engineering, finance and pharmacy will be based.
With a number of both build-to-suit and speculative projects slated to begin construction in 2015, Pittsburgh should see a significant increase in leasing activity over the next 12 months, though rental rates will remain virtually unchanged and vacancy will fluctuate as new product is delivered to the market. Investor activity, particularly in the CBD, is expected to continue to increase in response to the market’s stability and high occupancy levels in class A and B properties.View Attachment