Region poised to become busier distribution center

| Friday, Oct. 27, 2006

The Pittsburgh region - although it has several large distribution centers - often is passed over by major retailers for other areas nearby, experts say.

But the situation may be changing.

Thanks to a concerted regional effort, large tracts of flat land near Pittsburgh International Airport are available for retailers' warehouse/distribution centers that in the past were won by areas such as Columbus, Ohio, and the Harrisburg-Lehigh Valley area, where flat land is more available.

"Because of being located between the two largest distribution hubs, the area has only been able to get the overlap from these areas in the past," said Lou Oliva, industrial broker for Grubb & Ellis/Pittsburgh, a Downtown industrial real estate firm.

While the response to making Pittsburgh a warehouse/distribution center has been slow, the region has the geographic opportunity to change that situation, Oliva said.

"Costwise, we could not compete with Columbus, which offered a large inventory of warehouse/distribution space at $3 per square foot, particularly for older facilities. But new developments near the airport, now available because of the Findlay Connector, make us competitive," he said.

Oliva said a recent large deal here came in at $4 per square foot, although most rental rates range from $4 to $5.

He said he agrees with a recent article in "The Economist," a noted London-based magazine, that said the addition of a highway spur connecting the interstate system with flat land near the airport could appeal to companies looking for places to put distribution centers.

"It has lower costs than the big coastal cities. Its potential appeal as a logistics hub thus gives it a fighting chance of attracting the sort of distribution investments that have helped such cities as Louisville and Memphis, though on a smaller scale," the article stated.

"I don't believe it will become a center on the scale of a Columbus, although we should see increase in warehouse/distribution activity here," Oliva said.

"We now have shovel-ready sites for firms interested in locating a distribution/warehouse facility in the region, something that wasn't available in the past, coupled with the designation of the Parkway West as I-376 as an interstate road," said Bob Cornell, president of Colliers Penn, a Downtown commercial real estate firm.

Those sites include CSG Properties' 325-acre Imperial Business Park, where a 100,000-square-foot building is available of the 2 million square feet planned there; Chapman Properties' 300-acre Chapman Commerce Park, a 2.8-million-square-foot mixed-use complex offering shovel-ready development sites up to 50 acres; Imperial Land Co. with about 800,000 square feet available, primarily in Allegheny County but partly in Washington; and the Buncher Co.'s Clinton Commerce Park, where a 200,000-square-foot spec building is under construction, with the ability to expand it to 400,000 square feet.

Without flat land available, it costs developers $40 to $50 per square foot to build a warehouse/distribution facility in the region, said Ted Ackman, senior vice president, Buncher Co.

"Our topography required large amounts of dirt to be moved in order to build, and that ran up the cost," he said.

"Pittsburgh is kind of isolated from the East Coast, and land there is often tough to build on although new highways opened up more flat land," said Robert Bach, senior vice president with Grubb & Ellis in Chicago.

"There is a possibility that retailers who didn't consider Pittsburgh in the past will consider it now, but other areas -- such as the Lehigh Valley and Columbus -- have long histories of being distribution hubs and tend to attract retailers to them," he said.

The Pittsburgh area can boast of some recent successes.

• TreeHouse Foods Inc. recently leased 265,000 square feet in a 540,000-square-foot warehouse along Nixon Road, near Route 28 and the Pennsylvania Turnpike in Harmar. TreeHouse earlier this year purchased Del Monte Foods' private label soup and baby food operations in the former Heinz plant on the North Side. That lease filled up the warehouse formerly occupied entirely by Glenshaw Glass.

• Dick's Sporting Goods announced in 2004 that it would increase the size of its distribution center by 50 percent in Westmoreland County. Instead of opening a new center elsewhere, Dick's decided to enlarge its existing 388,000-square-foot center in Smithton by another 200,000 square feet so it could service new stores from a single facility.

• Also in 2004, Aldi Food Stores opened a 412,000-square-foot regional headquarters and distribution center at Victory Road Business Park in Clinton, Butler County.

With 34.47 million square feet of warehouse/distribution space in the region, as of the end of the third quarter, about 4.2 million square feet -- or 12.2 percent -- was vacant, down from 13.7 percent at the end of the second quarter, according to a Grubb & Ellis survey.

In addition, 330,000 square feet of new speculative warehouse/distribution space was under construction, as was 47,000 square feet of new owner-occupied space, the survey listed.

Region not on par with others

The Pittsburgh region has numerous warehouse/distribution facilities, but it's not on par with other areas

• Giant Eagle's Crafton site, which opened in 1981, covers nearly 100 acres and has about 800 employees.

• Levin Furniture has expanded its warehouse in Smithton, Westmoreland County, to 311,000 square feet.

• Smart Parts Inc. acquired former Reinhart Food Services' 94,000-square-foot warehouse in Westmoreland County.

• Roomful Express Furniture purchased the 597,000-square-foot former Lazarus warehouse/distribution facility in Chartiers Industrial Park for its corporate headquarters and distribution/warehouse center.

• Francis X. DeLallo, trustee of the Mars Worthing Trust, purchased the 280,000-square-foot former Sony Electronics warehouse and distribution building in the Sony Technology Center-Pittsburgh in New Stanton, Westmoreland County.

• Downtown Pittsburgh-based Castlebrook Development, with co-developer Neyer Properties of Cincinnati, is planning to develop a 411,000-square-foot warehouse/distribution facility at the Pennsylvania Turnpike interchange with Route 60 in Beaver County.

• At the northeast corner of the turnpike's intersection with Route 18, the Beaver Initiative for Growth has started on the first phase of Westgage Industrial Park, a 225-acre site in Big Beaver Borough, that is expected to have up to 1.3 million square feet of light industrial/distribution space. First tenant is Interline Brands Inc. of Jacksonville, Fla., which will occupy 55,000 square feet.

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