By Mark Fogel, president and CEO, ACRES Capital
As the state’s second-most populous metro, the Pittsburgh MSA is the anchor of western Pennsylvania.
Over the last 20 years, Pittsburgh has pivoted and evolved into a hub for the healthcare, education and technology industries, thus attracting an influx of young, high-earning millennials.
Over the last 10 years, Pittsburgh has undergone an economic resurgence. Firms such as Google and Uber have opened regional headquarters in the city, lured by the strong base of talent graduating from Carnegie Mellon University’s (CMU) computer science and robotics programs.
In fact, Pittsburgh has been the epicenter for autonomous vehicles (AVs) since the mid-1980s, when CMU’s Robotics Department developed the world’s first self-driving car. AV research, development and testing are expected to be catalysts of growth for the city in the coming years.
In addition, the cutting-edge research at the University of Pittsburgh School of Medicine and the associated University of Pittsburgh Medical Center, which operates eight hospitals within the MSA and plans to build three more over the next several years, is attracting medical professionals from around the world.
These factors, combined with a low cost of living and proximity to high-end amenities, have helped Pittsburgh add nearly 30,000 high-earning millennials over the past 10-plus years, higher than other top markets such as Boston, Minneapolis and Nashville.
Moreover, Pittsburgh has historically weathered recessions better than other major American cities, adding jobs during the financial crisis in the late 2000s as others were losing them. Eight Fortune 500 companies and six of the top 300 U.S. law firms are headquartered in the area, and the regional presence of prominent companies such as RAND Corp., BNY Mellon, Nova, FedEx and Bayer have helped make Pittsburgh a strong market for job growth.
For the commercial real estate industry, this means opportunity.
The shift from the city’s historical reliance on manufacturing presents a prime opportunity for the commercial real estate industry to move from industrial to multifamily development. Despite last year’s halt on nonessential construction due to COVID-19, multifamily development in Pittsburgh has held a steady pace over the last 15 months.
Pittsburgh is among the most undersupplied multifamily markets in the country relative to its growth of high-earning millennials and skilled jobs. The clustering of startups and venture capital creates potential for massive job growth in Pittsburgh’s urban core over the next five years, increasing pressure on multifamily absorption and rents.
The rapid expansion of this population, combined with the area’s challenging mountainous topography, has led to a critical shortage of multifamily housing in the region. (However, Pittsburgh’s hilly landscape and unpredictable weather are great for AV testing!) Developers are also under pressure to provide extensive amenity packages with smaller units that still offer modern living features.
There are also numerous prospects for adaptive reuse in Pittsburgh. General merchandise and department stores has been at the forefront of retail closings since 2018, accounting for 70 percent of big box vacancy. Adaptive reuses of this space have pivoted from retail to medical, self-storage, e-commerce and office space.
ACRES Capital recently funded a $33 million multifamily construction project in the Shadyside submarket. The 161-unit multifamily property at 5803 Centre Ave. includes 6,000 square feet of ground-floor retail space. The property will offer amenities such as a fitness center with a yoga studio, coworking office space with indoor and outdoor workstations and a self-checkout convenience mart.
The property is located within walking distance of the University of Pittsburgh Medical Center (UPMC) Shadyside Hospital and UPMC Children’s Hospital, which employ a combined 1,700 physicians. A Google corporate office is within walking distance, allowing the project to cater to tech professionals in addition to those in the medical community.
Shadyside, which is a part of the greater downtown submarket, has seen a significant rebirth due to the development of its adjoining neighborhoods to the southwest. Residents can drive to the Pittsburgh Central Business District in about 15 minutes and Pittsburgh International Airport in approximately 30 minutes.
Convenience, low cost of living, economic stability and a dearth of supply all combine to provide myriad opportunities for multifamily and adaptive reuse for commercial real estate developers and financiers in Pittsburgh.
— This article originally appeared in the March/April issue of Northeast Real Estate Business magazine.