See the latest office statistics and trends in the Pittsburgh market.
Despite slowed activity in Q1, the region has reason to be optimistic as a “flight-to-quality” is demonstrating “less is more.” Firms are seeing the benefits of modernized class “A” space while downsizing to accommodate the recent movement toward remote working. Existing class “B” properties, particularly in the urban core, must find ways to adapt. One way being used to attract tenants is to offer significant or creative concessions, including considerable free rent or greater tenant improvement allowances. Some property owners are completely pivoting their strategies and converting their buildings to residential use. The most significant recent example of this can be found at 300 Sixth Avenue in the CBD where GNC is vacating 310,000 SF of space. They are relocating their headquarters to 60,000 SF at 3 Crossings in the Strip District, leaving their former building to be converted to apartments by its new owner Victrix LLC.
Many firms are downsizing as they have found employees’ ability and preference to work remotely. This is a trend that is putting a considerable dent in the vacancy statistics. A few notable local companies are strategically downsizing, including PLS Logistics, who is relocating within Butler County to 2000 Westinghouse Drive. They will be occupying approximately 17,600 SF of space that Westinghouse put on the market for sublease. Also, Consol Energy will be relocating their headquarters within the Southpointe Business Park in Washington County. They are moving to 275 Technology Drive, where they are presumed to be occupying approximately 30,000 SF. This is a considerable reduction of space since they originally occupied more than 300,000 SF at 1000 Consol Energy Drive, a building specifically built for their use in 2008. It has been revealed that Citizens Bank is in the market to downsize and relocate their headquarters. Currently located at 525 William Penn place, Citizens occupies more than 100,000 SF, but are presumed to be downsizing and considering options outside the CBD.
The lack of new product delivery is astonishing, considering the amount of space under construction. Currently, nearly 2.8 million SF is in the works, but Q1 saw zero completions. This is the first time since Q2 2011 that no new product delivered. Rising material and construction costs, supply chain hurdles, and the surge of the Omicron variant can all take partial blame for this anomaly. Notable projects under construction include FNB Financial Center in the CBD and Liberty East in the East End, which will be approximately 472,000 SF and 281,000 SF, respectively. FNB Financial Center will be anchored by First National Bank, which was represented by Colliers. A vast majority of the projects in development are in the fringe neighborhoods of Greater Downtown, Oakland, and the East End. A desire to be near the universities and neighborhoods with dense, younger populations are drivers of site selection processes. Additionally, tech, life science, and lab users are requiring modernized facilities for the operation of their businesses. These properties are necessitating elevated rents approaching or touching the $50.00 per SF mark. This “flight-to-quality” trend is pulling many tenants, out of class “B” or low class “A” space, leaving a void and causing those more antiquated properties to get extremely competitive. Evidence of rental concessions were visible this quarter as overall asking rates dropped by $1.03 per SF.
The Central Business District, which has a high availability rate of 18.9%, managed to retain several firms in Q1. This is positive news for a submarket hit particularly hard over the past couple years. Government, legal, and financial firms tend to gravitate toward this submarket. In one of the largest deals of late, Allegheny County renewed for 20 additional years at One Smithfield Street. The County utilizes their 132,000 SF for the Department of Human Services. At Two Gateway Center, the law firm Babst Calland decided to maintain their 52,000 SF footprint. Also, One Oxford Centre saw a couple deals come to fruition as Interchange Capital and the McNees Law Firm signed on as new tenants.
The remainder of the year should prove interesting. Several significant projects are expected to be completed, and at least partially leased, as firms compete for premium product. Rental rates may also normalize as class “A” buildings become increasingly popular and class “B” landlords are forced to adjust their way of business. Major regional corporations are coming to terms with the location of their employees. BNY Mellon, which is one of the largest area employers, announced they were bringing employees back to the office in March on a flexible basis. This is one of the first dominoes to fall and other large firms are expected to announce plans soon. With patience and resilience, the greater Pittsburgh office market will regain its historically healthy status.