Pittsburgh Office Snapshot – Q4 2016
The Urban Land Institute (ULI) listed Pittsburgh among its top five markets to watch in the 2017 Emerging Trends in Real Estate Report. Pittsburgh ranked third behind Columbus, OH, and Richmond, VA, and just ahead of Charleston, SC, and Salt Lake City, UT. The Pittsburgh region made the list due to its low cost to do business; access to talent via four major universities; and, its status as an emerging tech hub with the likes of Uber, Google, Facebook and most recently, Amazon, establishing regional research and development centers in the city.
Despite the region’s growing popularity as a tech hub, leasing activity for 2016 reported a 6.3% drop from 2015, ending the year at just over 3.0 million square feet, while average overall asking rental rates dropped 3.0% to $19.12 per square foot (PSF). Class A space remains in high demand as leasing within the sector jumped nearly 10% year-over-year at the close of 2016 at an average asking rate of $24.57 PSF. The rental rates for Pittsburgh’s trophy office projects range from just over $30 PSF in the CBD to near $40 PSF in the neighborhoods just east of downtown, the region’s epicenter of education and innovation. The market’s leasing story has centered on the premise of relocation more than new business activity. The top leases for 2016 included People’s Gas Company’s relocation and consolidation from suburban markets to approximately 153,000 square feet (SF) at the former Del Monte Center; and United Health Care’s move from the Parkway East submarket to just over 71,000 SF at Nova Place. The argument could be made that the North Shore is the new Downtown as developers, investors and occupiers are growing increasingly more interested in the area just across the Allegheny River from the CBD.
Pittsburgh is expected to remain on the radar of national and perhaps even international investors in the coming months. The region experienced a flurry of out-of-town investment activity in 2016 with the acquisitions of 11 Stanwix Street, Allegheny Center, 525 William Penn Place, Liberty Center and the former Heinz offices by New York-based investors. With the city’s largest office tower and a pair of fully-occupied North Shore properties now on the market, 2017 is poised for record sales activity. Rental and vacancies rates have stabilized, though consolidations and relocations will lead to negative absorption and larger blocks of space returning to the market within the next 12 to 18 months.View Attachment