Pittsburgh’s Retail Vacancy Dips

Pittsburgh’s retail market is set to improve this year, amid two variables.

Pittsburgh’s retail market is set to improve this year, amid moderate employment growth and restrained development.

A recent Marcus & Millichap forecast shows that payrolls in the metro will expand by 9,500 positions in 2015, a lower increase than the national average. Most of the new jobs will be created in high-paying sectors such as technology, healthcare, education and energy, which will generate additional retail spending.

Pittsburgh Retail Market – Completions – 2015 Outlook

Pittsburgh Retail Market – Completions – 2015 Outlook

In 2015, retailers are expected to lift net absorption to more than 1 million square feet for the third consecutive year. Most of the expansions will be located in the proximity of employment centers in the CBD or near residential developments in north and south Pittsburgh.

New retail construction will grow at a slower pace this year and will be limited to a few small shopping centers and storefronts. Speculative projects will remain absent on account of high development costs. Overall, 300,000 square feet of retail space is scheduled to come online in 2015, less than half of the amount delivered last year.

Strong absorption, restrained construction and a steady demand will push vacancy down by 60 basis points to 3.6 percent and create an upward pressure on retail property values this year, placing Pittsburgh on the 16th position in the 2015 NRI ranking—up three spots from last year when vacancy contracted by 20 basis points.

Pittsburgh Retail Market - Asking Rent and Vacancy Trends

Pittsburgh Retail Market – Asking Rent and Vacancy Trends

Average rents will rise 1.5 percent to $12.62 per square foot this year, following an increase of 1.1 percent in 2014.

As for investment opportunities in the Pittsburgh retail market this year, there is limited for-sale inventory, which will impede deal flow. Steady rent gains and increased NOIs will determine owners to hold on to their properties, while average cap rates will contract to the low 7 percent range. Consequently, REITs which are willing to pay aggressive cap rates will remain the prominent investors, along with well-capitalized private buyers in search of well-located assets with high quality tenants and a stable cash flow.

 

Charts courtesy of Marcus & Millichap