Downtown Pittsburgh office market crowded, CBRE executive says
With office space nearly full, Downtown ranks among the most crowded of big U.S. cities, says the future head of commercial real estate broker CBRE Inc.'s Pittsburgh office.
The city's newer, modern buildings ranked as class A real estate have an occupancy rate averaging 94 percent, Jeffrey Ackerman told several hundred attendees Thursday at CBRE's annual symposium on the market.
“In six months, the occupancy rate will be above 95 percent and there won't be an office tower below 90 percent,” he said.
One reason for that is “about half of our older buildings are being converted to other uses,” said Jeremy Kronman, CBRE executive vice president. That limits available space but helps to increase rental rates, he said.
PMC Properties of Philadelphia has acquired four older office buildings that it will convert to apartments. But new buildings are planned and could ease the tight market.
Millcraft Industries' Gardens at Market Square will contain 120,000 square feet of Class A space along with 23,000 square feet of retail, a 176-room hotel and a 300-car garage.
Still possible is Oxford Development's proposal to build a 180,000-square-foot office building with 20,000 square feet of retail space, called 350 Smithfield, at 441 Smithfield St. A decision on this $238 million project may occur this year.
And the Tower at PNC Plaza, an 800,000-square-foot “green” office building, is under construction with a 2015 opening date. This structure, along with the conversion of the former Lord & Taylor building at Smithfield Street and Fifth Avenue into office space, will be only for PNC personnel, who may be moved from other buildings, leaving some vacant space for other tenants.
The Lord & Taylor building is scheduled to be opened late this year or early 2014.
Even Pittsburgh's suburban office market is among the tops nationally in occupancy, second only to Nashville, he said.
Ackerman, who is replacing the retiring Jack Morris as managing partner of the local CBRE office in April, said the strength of the office market here is demonstrated by national and institutional buyers purchasing Downtown buildings.
He mentioned the acquisition by Highwoods Properties of Raleigh, N.C., of EQT Plaza for $99.2 million. That marked Highwoods' second purchase of a major Downtown office complex following its $214.1 million acquisition of PPG Place, which now has occupancy at 92 percent, he said.
“And Pittsburgh is the only city above the Mason-Dixon line where Highwoods has invested,” he said.
U.S. Steel Tower several years ago had 500,000 square feet vacant of its total 2.3 million square feet of space. Today, it has an occupancy rate of 99.5 percent, he said. Bank of New York Mellon's main office building Downtown, One BNY Mellon Center, is more than 95 percent leased.
Seven years ago, Class A buildings Downtown had a 10 percent vacancy rate, he said. Since then, there has been 1.7 million square feet of office space leased.
Even two buildings on the North Shore last year were acquired by national real estate companies, with Kohlberg Kravis Roberts & Co. LP of New York paying $52.5 million for Del Monte Center, and IRA Capital, of Newport Beach, Calif., acquiring the Equitable Gas building for $31.3 million, he said.
Other additions Downtown include a hotel being included on the top floors of the Oliver Building, Downtown, later this year and the addition of more restaurants.
“We are moving towards putting a hotel on the upper floors of the Oliver Building, but are not yet ready to announce final plans for the facility,” said Bill Rudolph, partner of McKnight Realty Partners, the building's owner.
“In the past two years 26 new restaurants opened in Downtown, and 12 more are expected in the near future,” he said.
The region also has gained grocery stores with the addition of Bottom Dollar Foods, Aldi's, new Whole Foods and Trader Joes locations, plus several specialty food stores, he said.
“And I understand Wal-Mart is sniffing around about adding a grocery store here,” he said.
Sam Spatter is a staff writer for Trib Total Media. He can be reached at 412-320-7843 or firstname.lastname@example.org.