During the first quarter of 2012, job figures in the Pittsburgh metro area reached 1.14 million, the second highest watermark in Pittsburgh’s history. These figures coupled with improved financing options have prompted nearly $5 billion of current and planned investments in the downtown area.
Among the latest projects scheduled for the central business district (CBD) are:
• The Tower at PNC Plaza, an 800,000-square-foot office headquarters building being constructed at the intersection of Fifth Avenue and Wood Street;
• The Gardens at Market Square, a 175-room hotel and 100,000-square-foot speculative office project by Millcraft Industries, that will be anchored by construction management firm dck Worldwide;
• The Buncher Company’s 120,000-square-foot office building in the Strip District;
• Sampson Morris Group’s redevelopment of the former Wholey’s warehouse into 223,000 square feet of Class A office space with lower-level integrated parking; and
• the redevelopment of the 28-acre Civic Arena site. The plans for the former home of the Pittsburgh Penguins call for 1,200 housing units, 600,000 square feet of office space and 250,000 square feet of commercial space, all with LEED certification.
In addition to constructing The Tower at PNC Plaza, the bank also purchased the former Lord & Taylor building in the heart of Pittsburgh’s CBD. Vacant since 2004, the former Mellon Bank branch was converted to an upscale department store in 1998. Following renovations, PNC plans to move approximately 800 administrative employees to the six-story, 120,000-square-foot building in the fourth quarter of 2013 or first quarter of 2014.
Oxford Development Company is seeking an anchor tenant for a new Class A office building to be constructed on the site of the existing 441 Smithfield Street building. The new project, called 350 Fifth, would replace the current building and offer up to 772,000 square feet over 33 stories. If plans for new construction do not progress, Oxford plans to complete renovations to 441 Smithfield, taking it from a Class B building with nearly 100 percent vacancy to a Class A, six-story building offering approximately 120,000 square feet.
Energy and technology drive leasing activity
Google Inc. kicked off the year with a 30,000-square-foot expansion to its Bakery Square offices, bringing its total occupancy to more than 130,000 square feet. The company cited the pipeline of engineering talent matriculating from the region’s colleges and universities as one of its reasons for continued expansion.
M*Modal announced that it would expand into two new floors at its Squirrel Hill office, absorbing an additional 27,000 square feet, and the University of Pittsburgh leased 30,624 square feet on nearby Baum Boulevard for the Department of Biomedical Informatics. In the Parkway West submarket, Calgon Carbon expanded its office space at McClaren Woods to 44,000 square feet and has long-term plans to build a larger facility in the park, while Chevron U.S.A. leased 66,700 square feet to accommodate its Marcellus Shale business units.
Investment activity
Investment activity in the region, particularly within the CBD, has escalated within the past 18 months. Highwood Properties entered the Pittsburgh market with the $214 million purchase of the six-property PPG Place portfolio. Healthcare Trust of America added a third Pittsburgh property to its portfolio with the $54 million purchase of Penn Avenue Place, downtown, while PMC Property Group also expanded its Pittsburgh presence with the purchase of the Regional Enterprise Tower for $7 million. The company plans to convert the top 14 floors of the former Alcoa headquarters into apartments, moving existing office tenants to the lower floors.
A new record for the highest price per square foot for a suburban Pittsburgh office building was set with the sale of the 118,000-square-foot 1000 Westinghouse Drive in Butler County, which sold for $300 per square foot or a total of $36.2 million. The building was purchased by GC Net Lease REIT. Pittsburgh has had a financial advantage over other large cities because equity can be built faster with potentially higher profit and higher capitalization rates — approximately 8 percent compared with 5.5 percent in markets such as Boston, New York, Los Angeles and Atlanta.
Forecast
The regional economy remains stable and the influx of energy-related and technology companies should continue to drive leasing and build-to-suit construction activity for the foreseeable future. Occupancy levels are the highest they have been in the CBD since the 1980s, and rents in the CBD and surrounding areas are expected to rise up to 7 percent per year over the next 5 years.
— Robert Geiger, principal at Cushman & Wakefield/Grant Street Associates, Inc.