Pittsburgh Industrial Snapshot – 2Q 2016

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Economy

In contrast to the national decline in natural gas production, Pennsylvania grew its output of the resource to 4.6 trillion cubic feet in 2015, nearly five times its total production in 2011. According to the Pennsylvania Department of Environmental Protection’s report, Washington County, a submarket of the Pittsburgh Metropolitan Statistical Area (MSA) led the state in the number of unconventional well permits related to Marcellus shale activity last year at 361. This report comes on the heels of Shell Chemical’s announcement that it would move forward with the construction of an ethane cracker in Beaver County, just west of Pittsburgh’s airport corridor. The new cracker, which is expected to be fully operational within the next decade, will employ nearly 600 workers when it begins production. Infrastructure improvements and environmental cleanup for the project already has created more than 400 of a predicted 6,000 potential positions, and site work has commenced on a 200,000-square foot (SF) build-to-suit warehouse nearby that Shell will lease upon completion.

Market Overview

Leasing activity centered on a number of build-to-suit projects, including a 260,000-SF distribution center for Philips Respironics in Westmoreland County; a 150,000-SF flex warehouse being constructed for Franklin Interiors in the Parkway West Corridor; and a 60,000-SF warehouse in Warrendale, North Pittsburgh submarket, for Burns Industrial Equipment. Year-to-date (YTD) leasing and absorption were nearly matched at approximately 1.8 million square feet (MSF) in 2Q 2016 with no indication of a slowdown in the near future. Overall rental rates rose 33.4% during the same period, averaging $7.70 per square foot triple net at the close of 2Q 2016. User sales activity for 2Q 2016   more than tripled the total for 2Q 2015, ending the quarter at 534,595 SF. Among the most prominent sales was Retal LLC, a Cyprus-based manufacturer’s, purchase of the 140,000-SF former Spartech Polycom Inc. plastic production facility in Donora, Washington County submarket for $2.7 million.

Outlook

With a 579% increase over 2015 in the number of new construction projects under way year-to-date, the Pittsburgh market is poised to welcome a wave of new tenants within the plastics and advanced manufacturing sectors. Leasing, absorption and rental rates are expected to see double-digit improvements over the next several quarters.

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Author: Edie Hartman

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