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Downtown efforts leave empty feeling

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By Ron Daparma
Sunday, Dec. 17, 2006
 

Is Downtown disappearing•

"There are certainly too many vacant storefronts and too many deteriorated buildings, but we're slowly coming back," insists President Michael Edwards of the Downtown Partnership, which markets Western Pennsylvania's hub of economic and cultural activities.

The partnership boasts of $3.3 billion worth of pending projects for the Downtown area. The projects range from construction of a transit tunnel under the Allegheny River to take sports fans to North Shore ball parks to pricey condominiums in converted office buildings.

But statistics and patches of boarded-up storefronts paint another picture.

• Twenty percent of Downtown office space is empty. That vacancy rate is up 6 percentage points from 2001, according to a survey by Grubb & Ellis Co., a Downtown-based commercial real estate company.

• Twenty percent of Downtown retail space is vacant, too. As recently as 2003, the vacancy rate was 4.8 percent, according to a survey.

A sign of the times greets customers at Barnes & Noble in the Heinz 57 Center on Smithfield Street. The sign says the bookstore will close Dec. 30.

"I really feel bad about it, because now I have to go to the Waterworks (Mall) or find another bookstore," said Debbie Willis, of the Hill District. "There's nothing down here anymore."

More dramatic closings in recent years have included the government-subsidized Lazarus-Macy's store at Fifth Avenue and Wood Street and the Lord & Taylor's store on Smithfield Street.

The glut of office space includes the 32-story Dominion Tower on Liberty Avenue, the Warner Center along Fifth and Forbes avenues, and the venerable Union Trust Building on Grant Street.

"The closing of Barnes & Noble is a sign we're still in a battle, and we don't know at this time if we will win or lose," said Arthur P. Ziegler Jr., president of the Pittsburgh History & Landmarks Foundation, a leading preservation group. "But we have substantial local developers committed to Downtown, and we're certainly ahead of where we have been over the last decade."

Retail

A mid-year survey of Downtown retail space by Grubb & Ellis shows a 10 percent vacancy rate, which ordinarily would be considered a healthy number. But that rate doesn't show the entire picture.

That's because Grubb & Ellis removed the vacant Lazarus-Macy's building from the list. Add the 250,000 square feet of Lazarus-Macy's to the pool, and the vacancy rate jumps to about 21 percent, said Pam Lowery, client services manager for Grubb & Ellis.

What's more, the rate may be higher. Grubb & Ellis does not track occupancy in buildings smaller than 10,000 square feet.

Failed efforts to redevelop Downtown that spanned more than a decade helped prompt store closings, particularly in the retail corridor along Fifth and Forbes avenues, experts said.

"Some closed by design, others by default," said Michael Hendrickson, president of the Hendrickson Retail Group in Collier. "Some stores Downtown just couldn't hang on because things just didn't happen. But now I see more momentum than I've seen for quite awhile."

Retail specialist Craig Polard of CB Richard Ellis/Pittsburgh, a Downtown-based commercial real estate firm, also sees the retail picture brightening.

"We are getting a lot of interest in Downtown from retailers, both from stores not yet in the region and from retailers already in the region who want a Downtown location," he said, declining to identify the companies.

Smaller property owners and retailers, such as Candy-Rama on Fifth Avenue, remain concerned.

"We're taking it day by day," said Sherri Schrader, who manages the Downtown fixture of 53 years.

The building housing Candy-Rama was among 19 properties in the Fifth and Forbes corridor purchased by the city under former Mayor Tom Muphy's administration to attract a master developer. The city spent $13.6 million, but failed to attract a master developer.

"I would say business started going bad the last couple of years," said Schrader.

Neighboring retailers such as G.C. Murphy, a D&K Store and Payless Shoe Store and Penn Wig & Fashion have closed, she said.

"They used to help bring us business," she said.

Taxes are a problem, said Gerald Schiller, part-owner of several family-owned properties along Forbes Avenue and a frequent critic of government-driven rehabilitation efforts. "Retailers are deserting Downtown, because they are being phased out of business by the city's tax policy."

Schiller is particularly disturbed by a Business Improvement District tax increase on retailers. The 3.92-mill assessment, which provides money for the Pittsburgh Downtown Partnership, will increase by 5 percent annually for the next five years. The tax is levied against property owners in a 90-block area.

Barbara McNees, president of the Greater Pittsburgh Chamber of Commerce, supports the tax increase.

"We must keep Downtown safe and clean, not only for its current retailers and residents, but for visitors, new residents and others in the Downtown area," she said.

Office

Empty offices mean fewer customers for Downtown retailers. Owners of some office complexes, such as Gateway Center, advertise on radio and offer incentives to attract tenants.

The vacancy rate remains in the 15 to 20 percent range. (The results from three market surveys vary.)

Over the past quarter-century, Pittsburgh has lost more than 10 Fortune 500 companies to mergers, acquisition or other locales.

Potential tenants such as Equitable Resources Inc., the University of Pittsburgh Medical Center and smaller organizations are now looking Downtown, said Aaron Stauber, president of Rugby Realty Co.

The company owns about 1.7 million square feet of commercial space in a dozen Golden Triangle buildings.

Some tenants are moving from one Downtown building to another, but many are expanding, Stauber said. Some landlords recently stopped offering rent concessions to potential customers, he said.

Rental rates for some premier existing buildings have been averaging about $26 per square foot and costs for new buildings are nearing $30 per square foot, he said, a rate he hasn't seen for 20 years.

But others caution that rental rates vary. The Grubb & Ellis survey shows the average Class A building rental rate at $21.50 per square foot in the third quarter, up only 41 cents from a year ago.

"In some cases the rents are higher, but if you have a building with a high vacancy rate, you don't have a chance for a deal unless you offer lower rents," said Randy McCombs, executive vice president of the CB Richard Ellis/Pittsburgh commercial real estate firm.

Hope

The only positive Downtown number is residential space. According to the Pittsburgh Downtown Partnership, the Golden Triangle has a 94 percent occupancy rate for about 3,000 apartment and condominium units. And rents are rising, even as new spaces are being added, according to developers and landlords.

Efforts to attract new residents Downtown include Millcraft Industries Inc.'s $65 million conversion of the former Lazarus-Macy's into the Piatt Place office, retail and residential complex. The company also plans to convert city-owned buildings in the Fifth and Forbes corridor to residential and commercial use.

Millcraft plans to convert the former G.C. Murphy store and a half-dozen other buildings near Market Square into a mix of apartments, stores and restaurants.

Demolition has been completed to make way for the $179 million Three PNC Plaza on Fifth Avenue. PNC Financial Services Group is building the hotel, office and condominium complex

Stauber and others applaud the surge in residential construction.

Since December 2003, about 1,830 housing units have been completed, are under construction or are planned in Downtown and adjacent areas such as the Strip District, North Side and Uptown. Another 860 units are in the concept stage.

Lincoln Property Co.'s recently opened 151-unit The Encore on 7th apartment complex on Seventh Avenue, where units rent for $1,000 a month and up, reports 87 percent occupancy.

Developer Ralph Falbo, a partner in the 151 Firstside condominium project on First Avenue, says he has sold more than half (47) of those units. The units sell for $270,000 to $1.8 million.

"I think we are building momentum Downtown, and all the new developments will do that," said Ziegler of Pittsburgh History & Landmarks. "I have long advocated that attracting more residents is a key to Downtown. Once we do that, we will see retail and office improvements fall into place."

 

 
 


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