In recent months, Pittsburgh’s retail market has been characterized by suburban growth and a continued stagnation in the central business district (CBD). The closing in recent months of Lord & Taylor and Lazarus/Macy’s Department stores has dealt downtown revitalization plans a tremendous blow.

 The epicenter of suburban retail growth is located along Route 28, 13 miles northeast of Pittsburgh’s CBD. This formerly underserved area is the site of two new major developments. Deer Creek and Pittsburgh Mills — which are together nearly 500 acres and more than 2 million square feet of predominantly national retailers — will reshape the entire northeastern region of Pittsburgh. Pittsburgh Mills, a 1.1 million-square-foot enclosed mall, is scheduled to open later this year. It will be a traditional regional mall, anchored by Kaufmann’s (if the new merger of May and Federated doesn’t change the name) and JC Penneys. The larger of the two developments, it will also have tenants such as Borders Books and Music, Dick’s Sporting Goods, a multi-plex cinema and numerous outparcel restaurants. Additionally, a power strip, anchored by Wal-Mart and Sam’s Club, is currently underway. Deer Creek will be more than 600,000 square feet and will be anchored by Target, Giant Eagle, The Home Depot and potentially Costco. The mix of tenants will be rounded out by big box retailers such as Ross Dress For Less, Marshalls and Best Buy, in addition to various specialty restaurants and small tenants. Both developments are a tribute to the developers who have labored for years (Deer Creek, 7 years, and Pittsburgh Mills, almost 13 years) to get their developments approved.

 The retail growth in Pittsburgh has been both west in Robinson and North Fayette Township and also north in Wexford and Cranberry, due predominately to the availability of prime developable land with great regional access coming from major highways and interstates. Further, it typifies a national trend toward suburban residential growth, which has siphoned off customers from the core of the city.

 Perhaps the most exciting development to hit Pittsburgh since The Waterfront was developed by Continental Real Estate is the new SouthSide Works. SouthSide Works, a new 34-acre urban mixed-use development has brought a number of one-of-a-kind, high-end retailers to the Pittsburgh area. Retailers unique to the area include Joseph Beth Booksellers, The Cheesecake Factory, REI, Kenneth Cole, Z Gallerie and Urban Outfitters. The initial success has been tremendous and it bodes well for other unique specialty retailers to enter the Pittsburgh market.

 While areas surrounding Pittsburgh are seeing spurts of growth and development, the CBD still lags behind. In the past year, Pittsburgh has seen two major department stores, Lazarus/Macy’s and Lord & Taylor, pull out of the CBD due to poor sales. In the CBD, the current vacancy rate stands at 15 percent, whereas areas outside of the CBD are experiencing a vacancy rate around 6 percent. This has dealt the revitalization of the CBD a blow that will take some time to overcome. In spite of high vacancies and recent pull outs, there is optimism on the horizon for Pittsburgh’s CBD. A number of residential and hotel projects are planned for the district, which should boost future interest in downtown retail spaces. 

 Lastly, the announcement of the impending Federated and May merger will undoubted have a lasting impact on the regional malls within the region. The merger will create duplicity in each of the regional malls when Lazarus/Macy’s and Kaufmann’s morph into the same concept, making it necessary for landlords to get creative in filling these potential vacancies with perhaps non-typical uses like Dick’s Sporting Goods or even Target.

 Overall, the Pittsburgh region, despite little residential growth, has experienced a tremendous amount of retail development that promises to redirect shopping patterns for generations to come.

— Herky Pollock is an executive vice president in the retail services division of the Pittsburgh office of CB Richard Ellis


In Pittsburgh, the real estate market is benefiting from the continued revitalization of the downtown area. Pittsburgh’s downtown plan calls for the transformation of the area into a 24-hour city with a strong residential component to support retail and other uses. The large-scale redevelopment of the downtown area has resulted in new high-rise apartment and condominium projects. Lincoln Property Company recently began construction on a 16-story, 151-unit high-rise apartment project on Fort Duquesne Boulevard, with rents expected to run as high as $3,400 per month. Local developer Ralph Falbo has begun construction on a 17-story residential condominium project on Fort Pitt Boulevard. In addition, the conversion of the former Heinz Company buildings into 267 luxury loft units is underway on the North Side. Also under construction are 280 apartment units on the South Side. A total of 853 building permits were issued in Pittsburgh for developments containing five units or more. This represents a 36 percent decrease over the last 5 years’ average of 1,356 permits issued.

 Lack of population growth has been the defining factor in the Pittsburgh market. It makes for the chronically low new development levels that, in turn, protect landlords against oversupply. Despite the built-in protections, occupancy has decreased slightly in the recent times along with average rental rates. Three successive years of poor net absorption have altered the profile of the Pittsburgh multifamily market. While a positive net absorption is once again expected for 2005 by Reis Reports, the sum will be small. Reis has projected a net absorption of 202 units for the upcoming year.

According to the results of a recent occupancy survey of apartment units in the Pittsburgh market conducted by CB Richard Ellis, the overall occupancy rate for 2004 was 91.12 percent, which is slightly below the 92.93 percent reported in 2003, and well below the landlord-favored range of 96 percent to 97.5 percent that prevailed from 1995 to 2001. In accordance, the survey showed a slight decrease in average rental rates for the market from $741.70 per month in 2003 to $736.60 per month in 2004.

As the economy grows, and job growth continues — and if new construction remains slow — then we can expect absorption of current existing supply and subsequent growth in occupancy and a return to above-inflation rent growth. A study done by Duquesne University predicts job growth in the Pittsburgh region to grow 0.73 percent per year through 2008.

— Cindy Kamin is a senior vice president and director of multifamily sales in the Pittsburgh office of CB Richard Ellis


Improved market conditions have Pittsburgh’s industrial sector firmly on track for continued improvement in 2005. Sale and lease activity, combined with a modest volume of industrial construction, worked together to lower the supply of available product to approximately 15 percent in the more than 90 million-square-foot market. Class A high-bay warehouse space and flex space are in greatest demand and carry an availability rate between 8 and 10 percent. Rents vary widely by product type and are class dependent. Typically, median rent for flex space stands at $9.50 per square foot and $4.50 for warehouse and other industrial product.

The majority of new development in the Pittsburgh market springs from local developers familiar with the challenges of topography, infrastructure and highway access.

Despite demand for pad-ready sites for 100,000-square-foot or larger high-bay product types and flex product types with high quality office and back-room space for light manufacturing, developers not familiar with the Pittsburgh industrial market often find little incentive to chance large-scale speculative development. To offset costs and attract outside business and developers, southwestern Pennsylvania offers economic development incentives, such as tax abatements, grants and low-interest loans.

ALDI, the international grocery retailer, recently occupied a newly constructed 412,000-square-foot distribution center at Victory Road Business Park in a Keystone Opportunity Zone (KOZ). ALDI's decision to locate in a KOZ exempts them from paying certain state and local taxes for an extended period of years. The warehouse distribution center developed by the Community Development Corporation of Butler County for an estimated cost of $25 million serves as the grocer’s regional headquarters.

Two noteworthy projects were recently introduced in Pittsburgh’s western submarkets to address the demand for new industrial product. Starpointe Business Park, a 1,150-acre industrial park being developed by the Rubinoff Company in Washington County, landed Hamilton Kettles as its first tenant for a 30,000-square-foot freestanding building. Volvo, the Swedish car and truck manufacturer, plans to place a 20,000-square-foot truck repair facility in the park as well. The Elmhurst Group is developing McClaren Woods Business Park, a 70-acre, multi-use business park located in Allegheny County that offers office, flex and warehouse space. Five buildings are planned at the park totaling 290,000 square feet. Currently, a 64,000-square-foot building is under construction by Elmhurst for Lewis-Goetz and Company, a producer of hose, conveyer belting and gaskets.

One of several significant industrial sales transactions is U.S. Steel’s $16 million acquisition of the 191,000-square-foot flex structure at 800 East Waterfront Dr. in the mixed-use Waterfront development. The site, slated to become U.S. Steel’s R&D facility, is located on the historical Homestead Works steel mill site created by Andrew Carnegie at the end of the 19th century. U.S. Steel plans to spend an additional $7 million to $15 million to retrofit and move to the 2-year old structure, which was originally built for Siemens Westinghouse to produce fuel cells.

— Mark Jablonski is a vice president and director of research and information services for GVA Oxford in Pittsburgh


Pittsburgh’s transformation to a diversified technology- and services-driven economy has helped to insulate it from the large negative market spikes experienced in other cities during the latest cyclical downturn. Insulated but not immune, the 46.2 million-square-foot office market bottomed out in 2004 with modest positive absorption, a flat availability rate and stabilizing rents. While the overall amount of available space remains 3 percent above the historical average, the market is poised to improve through 2005 provided the economy produces jobs.

The reuse of valuable riverfront property accounted for more than 2.2 million square feet of new office developments in the greater central business district (CBD) submarket over the past 2 years, with 636,000 square feet of speculative and build-to-suit underway. SouthSide Works, a 34-acre mixed-use complex being developed by the Soffer Organization on the site of the former J&L Steel mill, is indicative of Pittsburgh reinventing its steel city persona. Within the complex, Quantum II, a six-story, 187,000-square-foot office building is under construction and expected to come on line in mid-2005 with a rent of $23.50 per square foot. Additional office construction completed in 2004 at the complex includes the 187,000-square-foot building at 2700 East Carson St., which features first-floor retail with office space on floors two through four.

On the North Shore, Continental Real Estate Companies is constructing two new build-to-suit office buildings on a 25-acre parcel between PNC Park and Heinz Field. Equitable Resources plans to occupy nearly all of the 180,000-square-foot building, which is slated for completion in mid-2005. Del Monte Foods will occupy 180,000 square feet of the 270,000 square feet in the second building. Each building will feature ground-floor retail and is part of a larger strategy to develop the entire 25 acres into a mixed-use area that features dining, hospitality, shopping and entertainment.

Driven by Carnegie Mellon University and the University of Pittsburgh, new developments in the Oakland submarket flow from the demand for technology generated from the profound intellectual capacity found in Pittsburgh’s university core. The University of Pittsburgh is completing construction on a 330,000-square-foot, 10-story office and lab building for the development of new therapies, vaccines and related life-sciences products. The six-story, 120,000-square-foot RAND Building, being erected by the Elmhurst Group in the heart of Oakland, is 77 percent pre-leased by the RAND Corporation, the University of Pittsburgh and Mellon Bank.

— Mark Jablonski is a vice president and director of research and information services for GVA Oxford in Pittsburgh

©2005 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.

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