Office Market Stable in Pittsburgh
- May 27, 2015
Pittsburgh’s job growth in the education, medical, technology and energy sectors will drive up demand for office space this year, sustaining a healthy absorption of new inventory.
According to a recent forecast from Marcus & Millichap, after hiring 8,000 people in 2014, local employers are expected to increase payrolls with the addition of 9,500 jobs this year. Of this total, 5,400 new positions will be in office-using sectors. Overall however, Pittsburgh’s employment forecast will lag the national average for the fifth consecutive year, restraining its NOPI ranking to 33, down four places from last year.
Net absorption in the metro’s office market will rise to more than 1 million square feet in 2015, up from the annual average of 800,000 square feet recorded over the past two years. Nonetheless, this uptick in absorption will be counterbalanced by upcoming deliveries, which will generate a slight increase in vacancy this year. Additionally, a number of speculative developments are scheduled to come online over the next two years.
In 2015, developers are expected to complete 1.4 million square feet of office space, up from 1.1 million square feet delivered in 2014. The city’s high demand areas include downtown, the airport section and the Interstate 79 corridor. The largest of these developments is the 800,000-square-foot build-to-suit PNC headquarters in downtown Pittsburgh. Upon completion this fall, the $400 million, 33-story tower will house approximately 2,200 employees.
New inventory will contribute to a subtle increase in vacancy this year, which is estimated to expand by 10 basis points to 14.1 percent. Last year’s vacancy rate increased by 20 basis points.
Meanwhile, asking rents will rise 1.0 percent in 2015, after recording a 1.0 percent increase in 2014.
As for investment opportunities this year, the steady Pittsburgh office market is expected to attract out-of-state buyers who are priced out of their local markets. Investors will seek stabilized Class A/B properties located in the CBD or in the city’s northern suburbs such as Cranberry or Wexford. They should nevertheless monitor areas where new supply is scheduled to come online, as these additions may affect asset performance. Medical office properties in the mid-6 percent cap rate range will garner interest from institutional investors.
Charts courtesy of Marcus & Millichap