Share This Page

Region's tight industrial space ratchets prices, limits options

| Wednesday, Feb. 13, 2013, 11:45 p.m.
Scott Tyner, an employee of UPS stands in front of the soon-to-open UPS building at Jackson Pointe Commerce Park north of Cranberry, Tuesday. Photo taken February 12, 2013. Andrew Russell | Tribune-Review

The improving economy and demand related to Marcellus shale gas exploration have caused a shortage of industrial real estate space in the Pittsburgh region — a trend that's encouraging but gives reason for concern, experts said.

The tight supply signals a healthy market but drives up prices and limits options for industrial companies looking to expand here.

“The Pittsburgh industrial market is at a tipping point,” said Lou Oliva, executive managing director at Newmark Grubb Knight Frank's Pittsburgh office, an industrial real estate broker Downtown.

Vacancy rates for industrial space neared an all-time low of 7.4 percent at the end of last year, down from 9.2 percent in 2011, according to a report from Newmark Grubb Knight Frank. Another report from Grant Street Associates/Cushman & Wakefield put the vacancy rate at 8.5 percent.

The dwindling supply of sites for warehouses and industrial plants caused 67 companies to look elsewhere over the past five years, said Dewitt Peart, president of the Pittsburgh Regional Alliance.

“In the past few months, I have assisted two companies looking to lease … only to lose them to neighboring states because of our lack of inventory and higher than national rental rates,” said John M. Lisowski, vice president of Grant Street Associates.

When companies shy away from the market, the local economy loses job opportunities, said Don Smith, president of the Regional Industrial Development Corp. of Southwestern Pennsylvania.

“We could be losing about 1,000 new jobs a year with the failure to have sufficient space to accommodate new or expanding companies in the region,” Smith estimated.

The trend in Pittsburgh mirrors the national market. Demand locally is expected to remain healthy because of leases by shale gas drillers and related companies.

More than a third of respondents to a Grant Street Associates survey said they were working on business related to the natural gas industry — up 20 percent from 2010.

Though many manufacturers are not directly involved with the extraction process, they contribute to the supply chain for drillers, providing pipe or concrete.

Peart believes a need will arise for industrial buildings to house businesses related to the petrochemical industry if Royal Dutch Shell PLC builds a “cracker” plant in Beaver County as proposed. The plant would extract ethane and other compounds for use in making plastics and other materials.

“The market needs a catalyst for future growth, and the ethane cracker plant under consideration by Royal Dutch Shell could be the answer,” said Oliva.

One obstacle to growth in industrial space is the cost to prepare sites because of the difficult topography. One group is hoping to spur construction by offering low-interest loans to developers.

The Allegheny Conference on Community Development is trying to raise $50 million to $60 million for the loan program to offset risk developers face in preparing pad-ready sites for industrial development before they secure tenants, Peart said.

“The only viable solution for occupiers needing more than 200,000 square feet of quality space will be new construction, which should benefit existing landowners of pad-ready sites,” Oliva said.

Another challenge is developers' apparent unwillingness to build industrial space larger than 200,000 square feet — the size of four football fields — without a signed tenant.

“Nationally, most new industrial construction in 2012 was composed of build-to-suit projects, so the Pittsburgh market was not alone in experiencing limited speculative development,” said Richard Gasperini, an industrial broker with CBRE Inc.

National developers of industrial real estate have invested in large East Coast and West Coast cities since the recession, and real estate experts do not expect that to change, Gasperini said.

The tight supply pushed up rents in Western Pennsylvania in 2012. The square-foot rate at year-end was $7.46, up from $7.43 in 2011, said the Grant Street Associates report. Newmark Grubb pegged asking rents at $5.15, up from $5.05.

Industrial facilities are under development:

• United Parcel Service will relocate from Butler to a building at Jackson Pointe Commerce Park in Jackson, Butler County, where a building for Highmark and a speculative building are planned.

• The Allegheny County Airport Authority is preparing sites in Findlay, including one at the end of McCaren Road and Route 30, and private developers are preparing properties near Pittsburgh International Airport, said Dennis Davin, director of the county Department of Economic Development.

Sam Spatter is a staff writer for Trib Total Media. He can be reached at 412-3207843 or sspatter@tribweb.com.

TribLIVE commenting policy

You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.

We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.

While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.

We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers

We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.

We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.

We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.

We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.