The fourth quarter of 2020 saw vacancy rates for class “A” and “B” office space in the Pittsburgh region rise to 11.8%. This is a trend that has continued for the past seven quarters and increased a full 1.6% over Q4 2019. Despite the rising vacancy rate, asking rental rates also increased slightly going from $25.47 to $25.58 for class “A” and “B” properties. The Oakland submarket has the highest quoted rents at $47.76, followed by East End at $39.72. This demand is dictated by the large concentration of talent around the University of Pittsburgh and Carnegie Mellon University. Many technology and life science firms are willing to pay a premium to attract desired employees. The Central Business District (CBD) ended 2020 with a 14.2% vacancy rate. This is down slightly from 14.3% in the prior quarter, yet still up from 13.0% at the end of 2019. When looking at total availability (accounting for vacant space, as well as shadow space) the CBD has an availability rate of 17.0%. This is a 1.1% increase year-over-year. This is a trend not unique to Pittsburgh, as many CBDs across the country are enduring the effects of the COVID-19 pandemic. Social distancing and reliance on public transportation have made it difficult to maintain sanitary practices in the more densely populated downtown area.
Sublease space continues to surge, particularly in the CBD, where it experienced an increase of 157% since Q1 2020 and now stands at 565,690 square feet (“SF”) available. The fourth quarter saw a net increase of 40,936 SF of space being marketed for sublease. As firms maintain work-from-home policies, they are finding the need to right-size, thus bringing unused space to the market. A prime example is in the CBD where international accounting firm, PwC, announced they will put a little more than 21,000 SF of their former space up for sublease. This is a result of their ability to downsize to approximately 16,000 SF at One Oxford Centre.
The Pittsburgh market finished the year with a negative 861,892 SF net absorption. However, the fourth quarter posted a positive net absorption of 45,980 SF. This is the first quarter the market has seen positive net absorption
since the end of 2019. Completion of the preleased Boardwalk development to ConnectiveRX in the Parkway West was a major contributor to this absorption swing. Two firms, NeuBase Therapeutics and Novasenta, signed leases for space at the Riviera in Oakland. Both firms will have a significant wet lab component to their space. This is further evidence that the biomedical and life sciences industries continue to thrive during the pandemic. Combined, the firms will occupy a total of approximately 26,000 SF.
The Pittsburgh Planning Commission approved two notable projects that will affect the Greater Downtown submarket. After much debate and a redesign, JMC Holdings has received approval to construct a 550,000 SF 23-story office tower in the Strip District. The building will sit on a site currently occupied by the former Wholey Cold Storage facility. Also, Somera Road, Inc. received approval to convert the former SouthSide Works Cinema into 77,000 SF of office space. Both developments are being constructed on a speculative basis – further proof of the strong demand for new class “A” space in fringe submarkets such as the Greater Downtown.
Currently, 15 office projects are under construction. The largest is Bakery Square Three. This 306,333 SF building in the East End is expected to be completed in early 2021 and a majority has been preleased to Philips and Carnegie Mellon University. Another property poised for completion in Q1 2021 is the construction and renovation of the former Pittsburgh Athletic Association Building at 4215 Fifth Avenue in the Greater Downtown submarket. One major groundbreaking in Q4 was 5051 Centre Avenue in Oakland where a 115,000 SF office building is being constructed by Wexford Science + Technology. This development sits next to 5000 Baum Boulevard, where the same developer is renovating a former Ford Motor Company depot into UPMC’s Immune Transplant and Therapy Center. Scheduled for 2021 is the groundbreaking of the 458,000 SF FNB Financial Center in the Lower Hill District section of the CBD. Approximately half of the building will be occupied by FNB, while the remaining space will be marketed for lease. It should be noted that several B/B- buildings in the CBD are slated for conversion to residential units, such as The Allegheny Building and The Commonwealth Building.
As we enter 2021, Pittsburgh is positioned to weather the storm of the COVID-19 pandemic. Various medical, technology and life sciences firms continue to occupy space in the region creating a strong economic ecosystem.
Even as the world economy was on a downswing through much of 2020, several major groundbreakings and deliveries are pointing to the confidence in the resiliency of our region.