Pittsburgh has been incredibly lucky in that the area has avoided the havoc wreaked on the national economy during the last couple of years. The education and medical sectors bolstered the area during the recession, and the region is fast-becoming the ‘Energy Capital’ of the Northeast, with Pittsburgh as its epicenter. These factors have allowed the region to maintain its traditional path of steady growth, which has bucked the national trend and provided a safe haven for the local industrial real estate investment community.
The market continues to operate in a supply-demand imbalance with weight tipping towards demand for industrial product. This has supported irrational pricing, with a number of recent sales of industrial facilities trading higher than traditional prices.
The Pittsburgh industrial real estate market comprises less than 170 million square feet. With limited new construction and virtually no impact from loan defaults, the prices for industrial assets have held value. On the flipside, the market does not provide cash-rich buyers with many opportunities to purchase assets at bargain prices.
The region’s overall industrial vacancy rate is hovering at 7.5 percent, falling by 0.4 percent from the fourth quarter of 2010. This is 2.2 percent below the overall U.S. industrial market vacancy of 9.7 percent as tracked by Jones Lang LaSalle. The occupancy rate has held above 92 percent for the second consecutive quarter. Meanwhile the vacancy rate registers 7.4 percent, which is directly linked to robust average rents of $4.99 per square foot as reported by CoStar. This is a 3-cent-per-square-foot increase over the previous quarter, showing evidence of a robust market. The warehouse vacancy rate resides at 7.1 percent with rental rates ranging from $3.75 to $5.50 per square foot. The flex market has remained healthy too, with occupancy levels reported at 90 percent across the region.
The supply-demand imbalance has created a competitive environment for investors looking to purchase well-located assets. This dynamic has also filtered into the leasing market with tenants vying for the best space. Industrial rents have been maintained in Class A assets but some Class B building occupants are paying close to Class A rents too. With limited space options for occupiers to expand or move, the building owners are enjoying lucrative rents. It’s a truly landlord-favorable environment.
The lack of inventory and strength of the market create a great opportunity for national developers. We expect to see them enter the market and correct the current inventory dearth before long.
The Pittsburgh region continues to build on its traditional strengths within manufacturing, finance and business services while developing a new energy sector and capitalizing on the abundance of intellectual capacity within the local academic communities. This has created a dynamic and balanced economy. And the Pittsburgh industrial real estate market will see a significant boost as the new industry stars search for buildings to support their contribution to Pittsburgh’s thriving business community.
— Rick O’Brien, senior vice president, Industrial Real Estate Services and Supply Chain and Logistics Solutions at Jones Lang LaSalle