Pittsburgh Office Market Snapshot – Q1 2019
Unemployment in the Pittsburgh region hit its lowest level in nearly half a century, dropping to 3.6% in February 2019. The workforce grew by 8,000 new jobs, despite announcements by both FedEx Ground and Bayer Corporation of planned consolidations and closures estimated to result in the elimination of more than 700 local jobs. Partners4Work, an Allegheny County workforce development organization reported that online job advertisements nearly doubled in 2018 as employers struggled to match candidates with specific skills required to support the region’s top industries of education, medicine, technology and robotics.
The new construction pipeline for the region topped 1.7 million square feet (msf) in the first quarter 2019, an increase of more than 175% over the same period 2018. More than 75% of new projects announced are located within the urban core, including the Pittsburgh Penguin’s redevelopment plan for the former Civic Arena site. The Penguins have partnered with Buccini/Pollen Group to develop and market approximately 190,000 square feet (sf) of retail and 810,000 sf of office space on the site of their former home. Construction on the first 200,000-sf office building is scheduled to begin in the fourth quarter 2019. Across the Monongahela River on Pittsburgh’s South Side, Trammell Crow unveiled plans for a 200-room hotel and three additional office buildings totaling 400,000 sf at its Glass Works project just east of Station Square. The first 120,000-sf building is scheduled to break ground later this year. New development in Pittsburgh’s office sector is driven not necessarily due to supply issues, but rather by the modern demands of current and future occupiers. Older inventory – in both the CBD and suburban markets – is suffering an uptick in vacancy rates – 70 basis points year-over-year in first quarter 2019 – as tenants choose new speculative or build-to-suit options capable of offering key amenities such as access to natural light, fitness centers, flexible floorplates and onsite food and beverage. Thus, while it is most common to see asking rental rates fall as vacancy rates rise, Pittsburgh’s new construction deliveries come with a higher price tag, challenging that trend.
New leasing and net absorption activity should experience substantial year-over-year increases while overall vacancy will edge up slightly throughout 2019.View Attachment