Tech Sparks Transformation in Pittsburgh

JLL’s Nick Francic discusses the new direction of Pittsburgh's office market and the challenges along the way to a diverse and balanced business climate.
Nick Francic, Managing Director, JLL. Image courtesy of JLL

In the past few years, Pittsburgh has successfully diversified its economic base to include education, health care, finance and, more recently, technology. The metro houses big players such as Google, IBM, Apple, Intel, Uber and Amazon that are digging deep in the talent pool the existing intellectual nodes have to offer.

These dynamics, combined with corporate expansions, a strong startup scene and an emerging coworking sector bolster demand for premier office space, especially in the Downtown, Oakland and South Side/Technology Drive submarkets. Nick Francic, managing director at JLL, shares his insights on the shifts in Pittsburgh’s office landscape. 

What drives growth in Pittsburgh’s office sector?

Francic: Currently, financial services, law firms and technology companies are absorbing the largest share of square footage. In 2018, one third of the metro’s leasing activity was bolstered by technology companies and was mainly focused around the urban fringe. Pittsburgh’s universities are providing the high-caliber research and the talent needed to grow technology firms.

What are the current trends shaping up the office market?

Francic: Tenants from the suburbs are migrating toward the urban core in an attempt to recruit the talent coming out of the universities.  

Tell us more about the challenges the office market faces.

Francic: Pittsburgh is experiencing rapid growth in a short period of time. The metro’s population is shifting younger. The city of Pittsburgh has one of the highest concentration of Millennials in the country. The challenge right now is being able to grow the population and talent pool at a rate to accommodate new companies entering the market.

How will the current developments in the pipeline impact the market in 2019?

Francic: We had two speculative deliveries thus far in 2019—one was 100 percent preleased, while the other is 85 percent preleased—both by technology firms. New product is changing the urban landscape, as well as revitalizing older neighborhoods. The quality of the new builds and redevelopment projects is raising expectations for office space in the metro.

What are some of the hottest submarkets in terms of investment?

Francic: Currently, what we refer to as the “Fringe” submarket is the hottest submarket for new development. Neighborhoods like the North Shore and the Strip District garnered 30 percent of the total leasing activity in 2018. Although the Fringe is in high demand, the Commercial Business District continues to see a high amount of leasing activity as business services, law firms and financial firms relocate to newly renovated buildings.

However, Oakland/East End is the submarket where the universities are located, and proximity to the universities is the most important thing on the tech companies’ checklists. The submarket’s most challenging aspect is the scarcity of available product, at a 3.3 percent vacancy rate. Currently, new developments are underway and these may relieve some of that pressure.

How do you think the market performed in the last quarters and how do you see it going forward?

Francic: In 2017, Pittsburgh’s office market experienced an increase in vacancy due to corporations optimizing their real estate business. In 2018, the city rebounded as tech firms continued leasing space and the corporate rightsizing subsided. This year and going forward, we expect the leasing activity from technology firms to keep pace, as research continues commercializing and the West Coast companies seek to plant a flag in Pittsburgh to capitalize on the talent pool.