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%.

Click here to see the full Q4 2014 Office Market Report.

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.

Click here to read the complete Q4 2014 Retail Market Place Newsletter.