Monthly Archives: February 2014
The fourth quarter of 2013 finished in much the same way it began and maintained throughout the year; solid if unspectacular growth. The vacancy rate fell from 7.9 percent in the third quarter to 7.7 percent in the fourth quarter and dropped three basis points in total over the course of the year. The lack of quality Class A warehouse continues to be a factor with vacancy levels dropping to an astounding 2.97 percent.
The region’s confidence continues to spiral upward with fourth quarter projections from numerous economists that the manufacturing sector will continue to rebound. Optimism is the word heading into 2014. Pittsburgh should be especially bullish given the multitude of story lines that should positively impact the industrial market. These include CSX announcing that they will construct a $50,000,000 multi modal facility in McKees Rocks; the continued expansion of the Southwest Pennsylvania energy sector, and the much needed passage of the state transportation bill. Any of these alone are significant, but taken in total, insure that the region will continue to advance forward.
With the rest of the country’s real estate portfolio just beginning to recover, the Pittsburgh office market has seen unprecedented success in terms of its vacancy rate. The overall vacancy rate for the market, at 8.1 percent, is one of the lowest in the country, but only begins to tell the story of how vibrant the market truly is. At no point in time during the last thirty years has our market been as healthy as it is today, with the potential for vacancy rates to dip even lower.
The number of large blocks (greater than 50,000 square feet) of class “A” space in downtown Pittsburgh can be counted on one hand, with only a limited number of new options appearing on the market. A tenant in the downtown market looking for more than 100,000 square feet has as few as four options, with one being a prominent sublease and another going to sheriff’s sale in the near future. Two projects, The Gardens and 350 Fifth Avenue, may add 300,000 square feet to the mix, but still won’t be able to answer the long term demands of the market.
This article is the first of a series that presents various aspects of real estate investment from a comprehensive wealth management perspective. Various relevant topics will include basic real estate asset-class investment characteristics, varying inflation hedging capabilities of public vs. private real estate investments, the market composition of the current real estate universe, and fundamental considerations necessary when determining cap rates on direct investments.
Commercial real estate in the United States is a $4 trillion asset class; however, traditional wealth management firms have primarily focused on selling funds, funds of funds, REITS, etc. to satisfy real estate diversification requirements. Colliers International | Pittsburgh now offers the “Colliers FO” platform (Family Office), which provides comprehensive real estate portfolio management services to Family Office and High Net Worth Wealth Management clients investing in direct real estate.