Q4 2014 | OFFICE
PITTSBURGH | PENNSYLVANIA
OFFICE MARKET HIGHLIGHTS
Incremental Growth In Pittsburgh’s Office Market
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.
MARKET INDICATORS
Q3 2014
Q4 2014
VACANCY RATE
AVAILABILITY RATE
RENTAL RATE
NET ABSORPTION
GROSS ABSORPTION
CONSTRUCTION
UPDATE
U.S. Vacancy Comparison, Past 10 Quarters
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%.
The average quoted rental rate for all classes was $20.61 per square foot. This represents
a 3.2% increase in quoted rental rates from the end of the third quarter. The average
quoted rental rate for Class A space was $26.56 while Class B space was $18.75 and
Class C was $14.49 per square foot.
During the quarter, two buildings totaling 556,643 square feet were completed. At the end
of the quarter, 2,324,245 square feet of new office space was under construction. The
largest project is The Tower at PNC Plaza comprised of 800,000 square feet.
In the past decade, the CBD has seen an increase of in excess of 5,000 new jobs.
Approximately 20% of CBD employment is filled by workers below 30 years of age, with
57% of these jobs paying $40,000 per year. This influx of new salaried workers has
fueled a vibrant restaurant scene that along with entertainment venues such as The
Benedum Center, Heinz Hall, The O’Rielly Public Theatre create a rich night life and
cultural experience.
www.colliers.com/Markets/Pittsburgh
RESEARCH
& FORECAST
REPORT | Q1 2010 | RESIDENTIAL | DIVISION NAME
Q4 2014 | OFFICE
| PITTSBURGH
Lights, Camera, Action! Pittsburgh Emerges as “Hollywood East”
Pittsburgh’s main connection with the entertainment industry has been the impressive number of famous actors and
actresses who have attended the School of Drama program at Carnegie Mellon University. The entire list is far too
long but some of the notable individuals include James Cromwell, Ted Danson, Holly Hunter, and Ethan Hawke.
Carnegie Mellon University graduate and television producer Steven Bochco based his highly popular and influential
NBC drama, Hill Street Blues (1981-1986) in Pittsburgh’s Hill District, an urban working class neighborhood located
above the former Civic Arena site. However, the show was actually filmed in Los Angeles as at the time Pittsburgh
did not have the reputation as a city capable of supporting film production.
It is not that Pittsburgh is a complete stranger to Hollywood as such highly acclaimed films as The Deer Hunter (1978)
and The Silence of the Lambs (1991) were partly shot here. However, Hollywood’s perception of Pittsburgh has
changed dramatically over the past ten years as the city has gained significant momentum as a desired shooting
location as dozens of both television shows and major motion pictures have been filmed here during this time. A
glance at the list of recent films shot in Pittsburgh reveals an eclectic mix of large budget blockbuster films, including
The Dark Knight Rises (2012), Tom Cruise’s Jack Reacher (2012), the comedy She’s Out of My League (2010), dramas
Promised Land (2013) and Out of the Furnace (2013), The Wonder Boys (2000), Slapshot (1977), Flashdance (1983),
Gung Ho (1986) and smaller art-house films like The Perks of Being a Wallflower (2012).
Industry experts cite some of the main drivers for Pittsburgh’s recent success are the city’s unique topography which
of course include three rivers, county bridges and tunnels and steep hills reminiscent of San Francisco, the relatively
low expenses as compared to Los Angeles and other major cities and the availability of a tax credit to drive down
overall production costs. The film tax program in Pennsylvania was reworked in 2007 to provide for $75 million in
annual film tax credits. This figure was subsequently revised down to $60 million by state lawmakers. The Pittsburgh
Film Office estimated that nearly $100 million dollars was brought into the Pittsburgh region over a three year period
as a result of film production.
The filming boom has had a modest impact on Pittsburgh’s overall Commercial Real Estate market, but some developers
have taken note. Michael Dolan, president of Island Studios, recently broke ground on a new $300 million dollar and
80,000 square foot film studio on a former railroad site in McKees Rocks, west of downtown Pittsburgh. “This would
not exist without the film tax credit program. That is a fact”, stated Mr. Dolan in a recent interview, “It (film tax credit)
is critical to this business.”
31st Street Studios in the historical Strip District neighborhood of Pittsburgh’s greater downtown submarket boasts a
300,000 square foot production studio, which was founded in 2011 by investment banker and Pittsburgh native, Chris
Breakwell. According to its web site, the studio was built on a former steel mill site and is the largest production studio
in the United States outside of New York or Los Angeles. All indicators appear to be pointing in a positive direction
for Pittsburgh to continue to gain momentum in the film industry. Unquestionably, one of the keys to this desired
successful outcome will be the state’s future policies related to the film tax credit.
Images From http://www.31ststreetstudios.com/
P. 2
| COLLIERS INTERNATIONAL
| OFFICE | PITTSBURGH
RESEARCH & FORECAST REPORT | Q1 2010Q4| 2014
RESIDENTIAL
DIVISION NAME
MARKET COMPARISONS - TOTAL OFFICE MARKET STATISTICS Q4 2014 > QUARTERLY COMPARISON AND TOTALS
EXISTING INVENTORY
BLDGS
TOTAL RBA
MARKET
Armstrong County
DIRECT SF
VACANCY
TOTAL SF
VAC %
YTD NET
ABSORPTION
YTD
DELIVERIES
UNDER
CONST SF
QUOTED
RATES
0
0
$10.91
42
335,712
14,500
14,500
4.3%
3,616
Beaver County
316
2,937,146
133,622
133,622
4.5%
44,148
0
0
$14.07
Butler County
411
5,683,659
402,926
410,564
7.2%
46,454
63,000
0
$23.16
Central Business District
232
32,445,986
2,806,055
3,000,619
9.2%
487,948
370,643
959,246
$21.83
Greater Downtown
519
14,268,184
1,118,556
1,143,754
8.0%
130,192
178,869
163,011
$21.72
Monroeville
168
3,350,613
354,611
354,611
10.6%
(21,074)
0
0
$17.80
North Pittsburgh
755
8,696,064
440,463
475,000
5.5%
197,929
215,200
89,000
$17.55
Northeast Pittsburgh
422
4,082,731
290,542
290,542
7.1%
(33,882)
0
0
$17.17
Oakland
159
5,340,754
128,990
128,990
2.4%
(28,816)
0
0
$16.65
Parkway East Corridor
755
10,790,051
1,163,585
1,172,607
10.9%
(14,384)
0
443,244
$25.71
Parkway West Corridor
323
8,790,860
809,796
839,165
9.5%
(61,821)
130,000
85,256
$20.36
South Pittsburgh
868
9,237,744
751,991
751,991
8.1%
33,778
104,751
0
$17.13
Washington County
411
7,463,741
457,159
460,936
6.2%
334,035
340,950
457,000
$18.32
West Pittsburgh
209
4,364,852
393,066
394,666
9.0%
(110,991)
53,000
53,600
$20.11
Westmoreland County
TOTALS
872
6,552,075
480,624
480,624
7.3%
184,253
0
73,888
$12.64
6,462
124,340,172
9,746,436
10,052,191
8.1%
1,191,385
1,456,413
2,324,245
$20.61
EXISTING INVENTORY
TOTAL RBA
VAC%
NET
ABSORPTION
BLDGS
DELIVERIES
TOTAL RBA
10,052,191
8.1%
868,224
2
556,643
15
2,324,245
$20.61
10,029,692
10,363,772
8.4%
399,283
5
455,515
15
2,774,277
$19.97
9,827,669
10,307,540
8.4%
40,258
4
196,150
17
3,097,904
$19.84
123,131,864
9,681,964
10,151,648
8.2%
(116,380)
5
248,105
17
2,794,810
$19.22
122,883,759
9,319,117
9,787,163
8.0%
180,928
2
98,471
18
2,502,673
$18.85
PERIOD
BLDGS
Q4 2014
6,462
124,340,172
9,746,436
Q3 2014
6,460
123,783,529
Q2 2014
6,455
123,328,014
Q1 2014
6,451
Q4 2013
6,446
VACANCY
TOTAL SF
DIRECT SF
UC INVENTORY
BLDGS
TOTAL RBA
QUOTED
RATES
COLLIERS INTERNATIONAL | PITTSBURGH FEATURED OFFICE MARKET LEASE ACTIVITY
PROPERTY LOCATION
*One Gateway Center
LEASE SF
14,329 SF
LANDLORD
TENANT
SUBMARKET
Hertz Investment Group
Louis Plung & Associates
CBD
*3030 Penn Avenue
8,150 SF
Tusk Development
Wombat Security Technologies
Greater Downtown
*519 Penn Avenue
8,000 SF
Human Services Center Corporation
Allegheny Intermediate Unit
Parkway East
*1001 Liberty Avenue
7,415 SF
Ix Liberty Center Owner Lp
Robert Half International
CBD
*Two Gateway Center
5,332 SF
Hertz Investment Group
Solenture, Inc.
CBD
* Signifies transaction with Colliers involvement
COLLIERS INTERNATIONAL | PITTSBURGH FEATURED OFFICE MARKET SALE ACTIVITY
PROPERTY LOCATION
2000 Technology Drive
SQUARE FEET
67, 020 SF
SALE PRICE
$10,224,000
SUBMARKET
MARKET DATA SOURCE: The CoStar
Pittsburgh Office Report, Year-End 2014
Oakland
Vacancy Rates By Class 2000-2014
COLLIERS INTERNATIONAL |
P. 3
RESEARCH & FORECAST REPORT | Q1 2010 | RESIDENTIAL | DIVISION NAME
Is It Time to Worry?
COLLIERS INTERNATIONAL | PITTSBURGH
OFFICE TEAM
There is little doubt that the economy of Western Pennsylvania has benefited in recent years
from the exploration and production of natural gas. In 2004, Range Resources pioneered the
Marcellus shale, the largest natural gas field in the United States, with the successful drilling
of the Renz#1 well in Washington County, PA. Shortly thereafter, the global, diversified
energy outfits followed suit, together with the oil field services providers and the gathering
and midstream companies, all seeking to capitalize on the liquids-rich shale play. It is believed
that the exploration of natural gas and the associated capital-intensive projects, such as Royal
Dutch Shell’s contemplated ethane cracker in Beaver county and Sunoco Logistics’ Mariner
East project, have the ability to reshape the region’s economy for generations to come.
The precipitous fall in the price of oil, natural gas, and natural gas liquids has resulted in
capital expenditure (capex) cutbacks, falling rigs counts, and job losses, signaling that trouble
may be on the horizon. The price of Brent crude has slid roughly 60% from a high of $110.00/
barrel in June of 2014 to roughly $50.00/barrel in January of 2015 (the lowest level in close
to 6 years) and the natural gas spot price closed at $2.89/MMBtu at the end of January (the
lowest level since June of 2012). It is widely anticipated that the low prices will affect energy
firms of every size, as large companies bleed profits and small firms are forced into distress.
These market dynamics have lead many wonder whether there should be cause for concern
in Western Pennsylvania.
The general consensus is that much will depend upon where and when oil finds its bottom.
However, there is reason to believe that the region is well-positioned to weather the storm.
Western Pennsylvania’s diversified economy derives demand from various sectors including
education, healthcare, technology, and professional services. All three of the submarkets that
experienced significant energy-related demand continue to maintain healthy market
fundamentals. The 79 South corridor and the Parkway West corridor, two of the energy
sector’s favorites, continue to see strong leasing activity. Southpointe maintains a vacancy
rate of just 2.5% and leasing activity along the Parkway West corridor is strong enough to
warrant the development of four speculative office/flex projects. Along 79/279 North corridor,
Class A vacancy stands at just 3% with asking rents of $27.26 per square foot. Additionally,
Pittsburgh’s Central Business District, where virtually no companies directly tied to natural
gas E&P have ventured, has continued to fare well with a Class A vacancy rate of just 6.4%
and asking rents of $25.94 per square foot.
In summary, both the CBD and suburban office markets in Western Pennsylvania are currently
rather healthy. However, a prolonged period of depressed oil prices could adversely impact
demand and potentially shift the balance from a Landlord’s market to a Tenant’s market.
Further, one may assume that decisions will be painstaking and approvals difficult to obtain
for the foreseeable future when negotiating transactions with energy-related occupiers. We
are of the opinion that this is a situation that warrants close monitoring.
Colliers International Statistics
UNITED STATES:
Revenues: $2.1 Billion
Countries: 63
Offices: 485
Colliers International | Pittsburgh
Two Gateway Center
603 Stanwix Street, Suite 125
Pittsburgh, PA 15222
TEL +1 412 321 4200
FAX +1 412 321 4400
www.colliers.com/markets/pittsburgh
Professionals & Staff: 15,800
Advisors: 5,800
Square Feet Managed: 1.46 Billion*
Lease/Sale Transactions: 80,000
Total Transaction Value: $75 Billion
(Based on 2013 results) *Square footage includes office, industrial and retail property under
management. Residential property is excluded from this total. All statistics are for 2013.
www.colliers.com/Markets/Pittsburgh
Q4 2014 | OFFICE | PITTSBURGH
Paul Horan
Founding Principal | Pittsburgh
Office Brokerage
+1 412 321 4200 | EXT. 205
paul.horan@colliers.com
Patrick Sentner SIOR
Founding Principal | Pittsburgh
Occupier Services
+1 412 321 4200 | EXT. 204
patrick.sentner@colliers.com
Ralph Egerman
Principal | Pittsburgh
+1 412 321 4200 | EXT. 201
ralph.egerman@colliers.com
Edward Lawrence MBA
Principal | Pittsburgh
Office Brokerage
+1 412 321 4200 | EXT. 213
ed.lawrence@colliers.com
Jessica Jarosz
Vice President | Pittsburgh
Occupier Services
+1 412 321 4200 | EXT. 202
jessica.jarosz@colliers.com
David Thor LEED AP
Principal | Pittsburgh
Occupier Services
+1 412 321 4200 | EXT. 208
david.thor@colliers.com
Alexis Wilkerson
Associate | Pittsburgh
Office Brokerage
+1 412 321 4200 | EXT. 225
alexis.wilkerson@colliers.com
This document/email has been prepared by Colliers
International for advertising purposes. Colliers
International statistics and data are audited annually and
may result in revisions to previously reported quarterly
and final year-end figures. Sources include The CoStar
Pittsburgh Office Report, Year-End 2014, PIttsburgh
Business Times, Trib Total Media, Whirl Magazine, 31st
Street Studios website, National Real Estate Investor.
Accelerating success.