Monthly Archives: March 2015
RETAIL MOVE OVER! OFFICE MARKET SHINES IN 4TH QUARTER; INDUSTRIAL SOFTENS SLIGHTLY
Office Market Sees Big New Construction Numbers
The Office Market in the 4th quarter saw an 8.1% overall vacancy rate, improving from the 3rd quarter’s 8.4% rate, with a positive absorption rate of 868,224 SF. Better yet, the overall asking rate when from $19.97 PSF in Q3 to $20.61 PSF, a 3.2% increase. Two new buildings were delivered totaling 556,643 SF, with another 2,324,245 SF under construction. Two of the high profile projects under construction include the 800,000 SF Tower at PNC Plaza and 250,000 SF at Zenith Ridge III. Notable office leasing transaction include: UPMC Health Plan, represented by Colliers International in Pittsburgh, taking 140,967 SF at Heniz 57 Center, and Wesco International Charitable Foundation’s 82,018 SF at Commerce Court in Station Square. Two new buildings were delivered in the quarter with 186,000 SF at 1 Southpointe Boulevard and 174,000 SF at the Wexford Medical Mall, both of which are 100% occupied. For the quarter, Class A space improved to a 7.6% vacancy and $26.56 PSF in asking rates; Class B space had an improved 8.7% vacancy rate and an $18.57 PSF rate; and Class C space saw the vacancy decrease to 7.5%, with a $14.49 PSF asking rate. The overall CBD vacancy rate improved to 9.2% in vacancy, while the Suburban market continued to improve and ended with a 7.7% vacancy rate.
Click here to see the full Q4 2014 Pittsburgh Investment Newsletter.
In the fourth quarter of 2014, Pittsburgh office vacancy decreased by 0.03% for an overall vacancy rate of 8.1%. Contributing to this growth is Pittsburgh’s continued momentum in the areas of energy, banking, health care and research and a vibrant CBD housing market. Although growth continues to be promising, anticipated major vacancies will occur in buildings such as 525 William Penn Place and USX Tower. Adding to the pressure, the newly purchased Union Trust Building will be bringing approximately 250,000 square feet of newly retrofitted space on line this year. Net absorption for the overall Pittsburgh market was a positive 868,224 square feet in the fourth quarter of 2014. Tenants moving from large blocks of space include: UPMC Health Plan vacating 168,802 square feet at One Chatham Center and taking 140,967 square feet at Heinz 57 Center and Computer Sciences Corporation moving into 57,501 square feet at Penn Liberty Plaza I.
While the concept of adaptive reuse of office buildings is not new, Pittsburgh has retrofitted 2 million square feet of office space for conversion to hotel and residential uses since 2011. Primarily this has affected older buildings allowing for the development of two new Class A high rise office towers for PNC, which will deliver approximately 800,000 square feet of space when PNC completes its second tower this summer.
The Class B office market recorded net absorption of a positive 482,239 square feet during the fourth quarter. Class B buildings reported a vacancy rate of 8.7% and Class C buildings reported a vacancy rate of just 7.5%.
Local Market Update
The Pittsburgh retail market continued to remain strong during the fourth quarter of 2014. Vacancy rates decreased slightly to 3.7% from the previous quarters 3.8%. Total inventory as of the fourth quarter was 135,697,548. Lease rates remained relatively steady with an average of $12.20 per square foot across all class types, which was a very slight decrease from the previous quarter. Total absorption during the quarter was 165,683 square feet. The market continues a four year trend of improving, both in terms of the occupancy rate and lease rates.
Top quality space remains difficult to find. Those national tenants who are searching for class “A” space with full stop light access have few options. Competition for the best locations is fierce, with restaurant uses aggressively pursuing opportunities. A number of smaller restaurant concepts, and fast casual tenants, are looking for similar type spaces – end cap locations with prime visibility and access. Tenants will either have to be very aggressive in pursuit of these top locations, or settle for less desirable in-line spots. Larger tenants have few options for existing big box anchor positions.
Some bigger tenants may find relief soon in the form of closed Bottom Dollar stores. Aldi’s completed its purchase of Bottom Dollar’s locations in the market and has proceeded to close these stores. Bottom Dollar’s 20 Western Pennsylvania locations may prove to be good options for junior anchor tenants looking for desirable locations. While a number of Bottom Dollars stores are in lower income areas, a few are in high traffic locations. Without substantial new construction, these closed stores may offer some release for prospective tenants.
While demand for space continues to be high, the market has not reacted with much new construction. As of the fourth quarter, only 128,000 square feet of new space is under construction. With most quality centers at or near capacity the time seems opportune for developers to consider either new projects, or the redevelopment of obsolete properties.
Q4 2014 Static Finish to the Year
The fourth quarter of 2014 finished without the anticipated flourish that it was trending toward. Vacancy actually crept up three basis points from 7.2% to 7.5% while absorption for the quarter experienced a negative 591,656 square feet. This is the largest negative quarter since 2009 and all others, with the exception of the second quarter of 2014, were positive. Even with the market giving back close to 600,000 square feet in the fourth quarter and 300,000 square feet in the second quarter, the year end absorption number was still a rosy 675,000 square feet.
At least a portion of the negative absorption in the fourth quarter of 2014 can be attributed to American Eagle officially bringing their 440,000 square foot distribution facility in Thorn Hill Industrial Park to market. It would be remiss not to credit a portion of the slow down to the sudden and unexpected drop in oil prices with prices under $60.00 per barrel, and for a brief time under $50.00, suddenly uncertainty spread into the previously teflon-coated energy sector. While this is anticipated to be a minor blip on the radar, it is fully expected to bleed into the first quarter of 2015, negatively impacting deal volume although not necessarily slowing advancement of projects by larger players in the sector.
Deals of significance in the fourth quarter include the sale of 367 Morganza Road, a Colliers International | Pittsburgh listing, in Washington County to National Rubber. The 65,700 square foot building traded at $52.00 per square foot. Edward Marc Brands leased 50,000 square feet in the Lawrenceville section of Pittsburgh and R&N Steel Manufacturing leased 70,000 square feet at 3401 Grand Avenue on Neville Island. Evidence of the trend noted on the back page of this report, 6500 Hamilton Avenue a 60,000 square foot multistory building in the red hot east side sold for $14.00 per square foot. The new owner plans to convert the former warehouse building to a higher and better use.
Evidence of the trend noted on the back page of this report, 6500 Hamilton Avenue a
60,000 square foot multistory building in the red hot east side sold for $14.00 per square
foot. The new owner plans to convert the former warehouse building to a higher and
Click here to see the full Q4 2014 Pittsburgh Industrial Market Report.