Pittsburgh Office Snapshot – Q1 2016
Recently featured in The New York Times as a “City on the Sunny Side of the American Economy”, Pittsburgh continues to generate interest from investors domestic and abroad. In 2015, the region tallied 275 publicly-announced business investments totaling $2.9 billion. Among them, 206 were direct investments in attractions, expansions and relocations; and 69 were development deals for real estate and infrastructure. Anticipated employment growth from these investments exceeds 5,400 new positions and retains nearly 10,000 positions – the highest numbers since 2011. Financial and business services tied information technology as the second most active sectors for growth in the region.
Tenant relocations drive leasing, slow absorption
Leasing activity in Q1 2016 was approximately 10.0% lower than the same period 2015, posting 661,991 square feet (sf). Much of this activity has been in the suburban markets for existing companies relocating to better meet their workplace and business strategies. As a result, net absorption in the total market dropped 250% year-over-year. The CBD remains strong, posting 156,685 sf of Q1 leasing and positive absorption of more than 116,000 sf while increasing the average asking rental rate from $21.57 per square foot (psf) in Q1 2015 to $22.70 psf.
Overall vacancy remains virtually unchanged, ending Q1 2016 at 10.0%, up 0.4 percentage point from one year prior. Though the average may fluctuate slightly, little change to overall vacancy is expected over the next 12 months. Class A asking rates continue to climb despite stagnation in the overall market rental rates. At $25.05 psf, the Q1 2016 average class A rate is up from $24.28 psf year-over-year ;and in the CBD, the asking rate increased 8.0% during the same period ending Q1 at $28.11 psf.
The rise of the tech industry in the Pittsburgh market is countering the decline of the energy sector, particularly within the Greater Downtown area. The challenge over the next 18 to 24 months will be for landlords to respond effectively to the evolving needs of modern office users – finding creative ways to provide attractive workplace amenities and resources, as well as, competitive rental rates.View Attachment