By Justin Brown, director of research, Cushman & Wakefield | Grant Street Associates Inc.
While the last year has been extremely challenging, one bright spot within Pittsburgh’s commercial real estate markets has been the industrial sector, the resiliency of which cannot be overstated.
Consistent increases in asking rents, flat vacancy rates and positive levels of absorption have been the norms for the past few quarters. Like many metros, the Pittsburgh industrial market saw very strong absorption in the fourth quarter of last year — about 391,000 square feet, to be exact. Net absorption slid to approximately 92,000 square feet in the first quarter of this year, but there rem
Justin Brown, Cushman & Wakefield | Grant Street Associates Inc.
ains ample reason to believe that leasing activity will stay steady, if not improve, in the coming months.
Much of the new leasing activity has been concentrated within the airport corridor. This region features both considerable land for new development and exceptional access to key pieces of infrastructure, making it popular with tenants and landlords alike.
Currently, there is approximately 1.8 million square feet of industrial space under construction throughout the metro, with more than half of those projects (about 1 million square feet) concentrated in the airport corridor.
The average marketwide vacancy rate has also held flat over the last 12 to 15 months, hovering between 6 and 7 percent, which is a bit skewed due to the inclusion of a number of derelict vintage properties.
Some would cite the growth of e-commerce amid the pandemic as the major catalyst for elevated development and absorption. However, demand for light manufacturing space from medical, pharma-tech, tech-flex and robotics users has also been consistent.
In addition, the progress of the $6 billion Royal Dutch Shell chemical processing plant continues to draw interest from industrial users involved in the supply chain of that project.
As in most major markets across the country, Amazon has been an active tenant in Pittsburgh, even leasing space in older repurposed assets that are located in fringe submarkets. The Seattle-based e-commerce titan has established warehouse/distribution, last-mile fulfillment and reverse logistic facilities throughout the region.
In the last six months, Pittsburgh developers have completed two major build-to-suit projects, one of which was for Amazon. The other was for Krystal Biotech, a locally based gene therapy company.
Due to these demand drivers, industrial rents have not been adversely affected by the pandemic. Like many other markets, Pittsburgh has now seen numerous consecutive months of positive rent growth.
The average asking industrial rent stood at $6.58 per square foot at the end of the first quarter, up from $6.25 per square foot in the fourth quarter of 2020, according to our data.
With widespread vaccination well underway and multiple federal stimulus packages having been disbursed, the Steel City’s overall job market is well on its way to recovery. Consequently, the Pittsburgh metro area is beginning to see an uptick in industrial development.
In terms of opportunities, Pittsburgh’s topography and limited high-density roadways have always served as barriers to entry for construction of larger distribution facilities. However, with better infrastructure development allowing convenient, accessible transportation routes, new development opportunities have rapidly stepped up to meet high tenant demand.
The biggest of these new infrastructural developments is the Southern Beltway Connector, an $80 million project that will stretch 13 miles from Route 22 near the airport to Interstate 79 in Robinson. The thoroughfare is scheduled to open this fall.
The combination of strong tenant demand, government aid to encourage consumer spending and more national players entering the market have all contributed to Pittsburgh’s recent development boom. As such, we expect another strong year in 2021.
— This article originally appeared in the March/April issue of Northeast Real Estate Business magazine.