Vacany Rate Drops to 8.1% for Pittsburgh Office Space

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The Pittsburgh Office market continues to see increased occupancy with a positive net absorption of 221,444 SF* across all classes of office space in the region.  Vacancy rates for all classes of office space have decreased to 8.1% and rental rates increased 1.1% between the second and third quarter of 2013.  The rental rate for Class “A” office buildings now stands at an average of $23.51 PSF and Class “B” buildings are quoting $17.87 PSF.  In the past two years the Pittsburgh market has seen the average rental rate for Class “A” space increase $1.75 PSF, while the vacancy rate has decreased by 2.7%.  The Class “B” market has seen similar trends.

What does this mean to businesses that are looking at lease rollovers in 2014?  New construction is still miniscule, with only 132,000 SF delivered in the 3rd quarter of 2013.  While the market has 1,600,000 SF that is under construction the vast majority of this space is for owner / users, such as PNC’s 800,000 SF facility under construction in Downtown.  The new 186,000 SF building under construction in Southpointe is 100% preleased, as is the 174,000 SF building underway on Wallace Road in the North Hills.  With very little speculative construction started, the expectation is that rental rates will continue to increase for the next 3-5 years.  Developers still need to have a significant portion of any new building preleased to secure financing and given the timelines to permit, finance and construct a new office building tenants may want to start looking at their options at least 24 months prior to the end of their lease.

Owner occupied sales are still going strong with quality buildings moving fairly quickly.  Financing is readily available for owner occupants and rates are still at historically low levels.  For the purposes of this report, I have tracked office buildings between 5,000 SF and 50,000 SF.  The Pittsburgh area saw 43 sales in this market in 2012.  The average sale price was $44.00 PSF and the average building size was 25,978 SF.  To date in 2013 we have already seen 39 sales, with a low price PSF of $5.15 and a high price PSF of $133.00.  With two months still to go, we will certainly exceed the total number of buildings sold in 2012.

Notable sales in 2013 include the 526,000 SF Federated Office Tower for $60,600,000 and the 270,000 SF Del Monte Center on the Northside for $52,500,000.

 

*All market statistics have been sourced from CoStar Group, Inc.© under license to Avison Young Pittsburgh.

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