Pittsburgh Office Snapshot – 2Q 2016
According to the Pittsburgh Downtown Partnership’s State of Downtown Report issued in 2Q 2016, the Pittsburgh region generated $636 million in new projects within the Greater Downtown area in 2015, up 21% over 2014. Among the new projects were 1.4 million square feet (MSF) of new office space; 761 new hotel rooms; 1,380 new residential units; and, 300,000 square feet (SF) of new retail.
The region garnered accolades from Men’s Journal and Bloomberg, who rated Pittsburgh as one of the 10 Best Places to live and the Best Place for New Grads to Find A Job, respectively.
Leasing activity on pace to surpass 2015
Leasing activity in 2Q 2016 nearly matched that of 2Q 2015 at 1.6 MSF, edging up 0.5% year-over-year, and with a number of significant occupiers now evaluating the market for relocation opportunities, total activity for 2016 is expected to exceed that of 2015. Reed Smith LLP and Buchanan, Ingersoll & Rooney, P.C., two of Pittsburgh’s largest law firms, are seeking relocation opportunities within the CBD. Reed Smith plans to move approximately 50,000 SF of back-office operations, while Buchanan, Ingersoll & Rooney is exploring the possibility of vacating its approximately 170,000-SF home of 20 years for a more efficient and open floor plan elsewhere in the CBD.
Overall vacancy for Pittsburgh’s office sector ended 2Q 2016 at 9.2%, virtually identical to the same period in 2015. Vacancy in the CBD was slightly higher than the overall market at 9.8%. Despite little change in vacancy, the overall rental rate for class A in the CBD rose 6.0% year-over-year in 2Q 2016, ending the quarter at $27.93 per square foot (PSF). Investment sales activity in the Pittsburgh region reached over 1.6 MSF at the close of 2Q 2016, but trailed 2015 activity by nearly 1.5 MSF. New York-based King Penguin Properties’ purchase of Centre City Tower, a 320,000-SF Class B office tower in Downtown Pittsburgh, for $21.5 million pointed to the growing trend of increased out-of-town investment in the region.
Expect increases in leasing activity but moderate absorption improvement as large occupiers shift their space plans to fewer and smaller perimeter offices and larger open work areas. With close to 1.0 MSF of potential space returning to the market in the next 18 to 24 months, Pittsburgh’s CBD is poised to benefit from new and highly-competitive tenant incentives to ensure stability in occupancy rates in the market’s premier office towers.View Attachment