Industrial Market

In January 2003, a partnership referred to as the Tri-County Airport Partnership (T-CAP) was formed between Pittsburgh’s Allegheny, Beaver and Washington counties and the Allegheny County Airport Authority. The partnership’s objective is to foster cooperation between the counties to facilitate growth in the airport corridor and the Pittsburgh region as a whole. In great part to this joint venture, Pittsburgh’s industrial sector has experienced extensive new growth in the airport corridor. This all important corridor not only has much needed available land, but within the next few years, the road systems throughout the area will be undergoing significant changes to provide greater access to and from the Pittsburgh region.

Currently, the Pittsburgh International Airport is the only major airport in the country without access to an interstate. This lack of interstate access has caused many business and developers to bypass the Pittsburgh region all together. Therefore, as early as 2008, 90 miles of the highway spanning from the Monroeville Pennsylvania Turnpike interchange to the junction of State Route 60 and Interstate 80 will be renamed Interstate 376. As of now, Interstate 376 runs from Monroeville to the Fort Pitt Bridge in downtown Pittsburgh. At that point the road changes to Interstate 279 and then changes to State Route 22/30 and then to State Route 60. The new Interstate 376 designation will not only make it easier to get in and out of town, but the new designation will create a clear-cut travel route. 

Pittsburgh’s six county MSA is ripe for development with 20 major sites with more than 5.9 million square feet of space available. Rental rates in Pittsburgh range from $3.65 for warehouse space to $8.50 for flex space. Vacancy rates are sitting at approximately 16 percent to 18 percent. More than 3,000 acres of land is being developed or is being proposed for development in the airport corridor. CSG Partners is developing Imperial Business Park, a 325-acre master planned industrial park situated only 13 miles from downtown Pittsburgh off of Route 22/30. The park currently contains a 100,000-square-foot Class A warehouse/distribution space and an 87,000-square-foot flex space. Upon completion, the park is slated to contain approximately 2 million square feet of Class A warehouse, distribution, light manufacturing and retail space.

The Buncher Company is constructing Clinton Commerce Park, which will sit adjacent to the Pittsburgh International Airport with access to Route 60, the future Interstate 376. The new park will contain an available 200,000 square feet of Class A distribution space that can be expanded to 400,000 square feet.

In addition, the Allegheny County Airport Authority has seven sites ranging from 2 acres to 80 acres around the airport terminal designated for manufacturing, flex, office and hotels. However, a large amount of available inventory will continue to remain for years to come as net absorption remains flat in Pittsburgh. The redevelopment of existing large sites that have closed from companies going out of business will also continue to be slow. The location of these facilities and the costs associated with retro fitting such spaces is often prohibitive, which makes attracting tenants, buyers or investors challenging.

Despite these challenges, developers are hoping to attract warehousing tenants to the airport corridor and all of Pittsburgh with new premium Class A high-bay space. For example, Bay Valley Foods, which purchased Del Monte Foods in Pittsburgh, recently took advantage of the premium space available and took occupancy of 420,000 square feet in the former Action Industries Building in Cheswick off State Route 28 just northeast of the city.

— Patrick Tracy is the vice president of Langholz Wilson Ellis, Inc./CORFAC International.

Retail Market

Retail activity in Pittsburgh continues to show strong gains as retail development is proliferating in a number of submarkets previously underserved by retail. In addition, retail has been bolstered by stable consumer confidence and employment levels and the fact that wages have improved. Discount and higher-end retailers are thriving while retailers in between aren’t performing as well. Demand among pharmacies, restaurants, gas stations/convenience stores and banks for strip center out-parcels and viable sites continues to drive up the cost of prime land sites. In addition, many of the retailers that were traditionally located in malls are now thriving in power centers, lifestyle centers and freestanding retail spaces. However, despite this, enclosed regional malls are experiencing an increase in occupancy and rent levels as well as tenant sales. Retailers new to the Pittsburgh market include IHOP, Sonic, Dairy Queen Grill & Chill, LA Fitness, Ross Dress for Less, Gordon Food Service, REI, Stein Mart, Walgreens, Chipotle Mexican Grill, Tiajuana Flats, On the Border Mexican Grill & Cantina, H&M, Trader Joe’s, Salsarita’s Fresh Cantina, Famous Dave’s and Fitness 19.

Retail tenants are experiencing increased occupancy costs as rent, insurance and energy costs continue to increase. In Pittsburgh’s Central Business District, vacancy rates sit at approximately 10.1 percent with average asking rents of up to $35 per square foot. In emerging markets such as North/Cranberry, vacancy rates are less than 5 percent with asking rents of $28 per square foot.

Development continues to be robust despite an increase in construction costs and land prices and the limited supply of well-positioned prime development property. Out of town developers as well as REITS have been actively buying and developing retail properties in the Pittsburgh market. In addition, several areas such as Pittsburgh’s Central Business District and the East Side are experiencing urban renewal that is bringing new retail opportunities to the area.

Mixed-use developments are popping up throughout the Northeast and Pittsburgh is no exception. Eager to meet the demands of consumers looking for more than simply a place to shop, developers in Pittsburgh are constructing live, work and play environments throughout several areas in the city. The Soffer Organization is developing SouthSide Works, a 34-acre, open-air mixed-use development on East Carson Street on the South Side of Pittsburgh. At full build-out, the center will contain 300,000 square feet of retail shops and restaurants, 610,000 square feet of Class A office space, a 200-key hotel and conference center and riverfront condominiums. Walnut Capital is also capitalizing on the popularity of mixed-use developments in Pittsburgh and is currently developing Bakery Square at Eastside. Set in the affluent area across from Mellon Park on Penn Avenue, this mixed-use development offers a lifestyle center environment that contains 132,200 square feet of high-end retailers, 153,400 square feet of office space, a 120-room hotel, 38 residential units and a 992-space parking garage. Banking on the success of its mixed-used development Southpointe, Horizon Properties is constructing a new expansion, Southpointe II. This project will include retail shops, restaurants and entertainment venues as well as 13 parcels developed as multi-tenant or single-tenant office space, a hotel, single-family and multi-family residential units, a cultural center and educational component, a hotel and recreational uses.

Open-air centers are also attracting new national and local retailers to the Pittsburgh area. Settlers Ridge, a new joint venture of Faison and CBL, is a lifestyle type development on a 77-acre parcel of land located off the Parkway West via the Settlers Cabin/Road interchange. It will include a theater, specialty retailers and restaurants. The new Eastside development by the Mosties Company touts urban design with suburban amenities. This new retail center is set on 3 acres with 88,000 square feet of retail and office space available. National retailers such as Whole Foods and Walgreens are already signed tenants. Continental Retail Development is constructing another town center type project in Pittsburgh, The Streets of Cranberry. This 108,621-square-foot project is located on Rochester Road off Route 19 in Cranberry, Pennsylvania, and is slated to open spring 2007. Tenants include Chico’s, J. Jill, Coldwater Creek, Talbots and Old Navy.

Emerging submarkets such as Cranberry, North Huntingdon, Washington, Downtown Pittsburgh and the North Shore, Greensburg, Oakland, Eastside (Pittsburgh), Robinson, Wexford and Southpointe are set for future retail growth and more development possibilities. Continued consumer demand and healthy economic projections will continue to propel the Pittsburgh retail market forward throughout the rest of 2007.

— David Glickman is a vice president with the Retail Group at Grubb & Ellis in Pittsburgh.

Office Market

Pittsburgh is flying high with US Airways announcement that they have chosen to locate a $25 million, 60,000-square-foot flight operations center in Pittsburgh. Pittsburgh beat out Phoenix and Charlotte for the center that will employ 600 workers.  Currently, US Airways operates a flight operation center in Findlay Township, near the airport, that employs 450 people. There will be 150 new jobs created.

The Ferchill Group, a local developer, has announced plans to construct a 150,000-square-foot building at the Pittsburgh Technology Center in South Oakland. Bridgeside Pointe II will consist of one-third office space and the remaining balance will be lab space. The proposed timeframe for the project has groundbreaking starting in the spring of 2007 with completion a year later. With Carnegie Mellon University and the University of Pittsburgh both located in Oakland, biotech companies and spin-off’s are always looking for space near these two institutions. With a vacancy rate of only 9.6 percent in Oakland, there is little quality space available.

In the first quarter of 2007, Verizon Wireless has announced that they will be expanding their customer service center in the Thorn Hill Industrial Park in Marshal Township, north of Pittsburgh. Verizon will be leasing nearly 66,000 square feet at 300 Allegheny Drive — the entire building. The expansion will add 330 jobs to the region and has retained nearly 1,200 others that could have potentially been moved out of state. With this new lease, Verizon will occupy more than 225,000 square feet of office space in the north submarket of Pittsburgh in three different buildings.

Airside Business Park, which only has one site left for development, could potentially see the last site used for an 80,000-square-foot office building. Balboa Insurance Group is considering consolidating its various Pittsburgh locations into one building.  A subsidiary of Countrywide Financial Corporation, Balboa currently occupies space at Airside Business Park Building Five. The Airside Business Park is made up of five buildings on 20 acres of land that used to be the Pittsburgh International Airport’s parking lot.

Although lagging behind the suburban markets again to end 2006, the Central Business District (CBD) is still of high importance. There is the possibility that a few major deals are on the horizon for the CBD with Cohen & Grigsby, UPMC along with a few other large tenants looking for space in the CBD.  Keeping the area alive are the companies that would rather not locate anywhere but the downtown area. Law and accounting firms, to name a few, play an irrefutable role in keeping the CBD an integral sector of the market.  

— Kristyn Siwiec is the director of Research & Marketing Communications for GVA Oxford.

New Pittsburgh Office Development — Three PNC Plaza

Three PNC Plaza is expected to generate 800 on-site and indirect construction jobs in Pittsburgh.

The Oxford Development Company of Pittsburgh is currently constructing Three PNC Plaza, a 752,000-square-foot mixed-use building located on Fifth Avenue and Market Street in downtown Pittsburgh. Encompassing 23 stories, the green-designed building is the first high-rise in downtown Pittsburgh in 20 years, and it will also be one of the largest environmentally friendly mixed-use buildings in the U.S. Construction began in August 2006 with the demolition of 13 existing properties located on Fifth Avenue with completion slated for late 2008. The building will comprise 320,000 square feet of rentable office space with Reed Smith, a Pittsburgh-based law firm set to occupy 50 percent of the space and PNC occupying the remaining space.  In addition, the project will include a 10-story, 185-room upscale hotel, 30 luxury condominiums located on the building’s top 10 floors, a 300-space underground parking garage, a restaurant and retail space. The building was designed by Gensler of San Francisco along with Astorino of Pittsburgh with green building consulting services provided by Seattle-based Paladino.

— Stephanie Mayhew

Investment Market

Pittsburgh has completed a transition from a steel town to a healthy and diverse economy well-rooted in service, medical, and high technology research industries. Major revitalization and redevelopment efforts have brought job growth and new real estate development to a number of areas in Pittsburgh, mainly the Central Business District (CBD), the North Shore and the North Hills. Today almost 4 billion dollars is being invested in Downtown and the North Shore of Pittsburgh. Going forward, the real estate economy in Pittsburgh has turned the corner and is stable and growing. As a result, many investors and developers are showing a strong interest in purchasing investment properties, redeveloping older obsolete buildings and developing new projects in the Pittsburgh region.

The rebirth of the CBD, a once vibrant retail core, has begun to show new life. PNC Financial Services Group, Inc broke ground on Three PNC Plaza, a new Class A 23-story office tower. Pittsburgh’s first new office tower in the CBD since 1987 will include the luxurious Fairmont Hotel and one of Pittsburgh’s largest law firms, Reed Smith LLP.  A block away, redevelopment of the former Lazarus Department store is underway, called Piatt Place, which will include Class A office space, high end condos and two high-end  restaurants;  McCormick & Schmick’s and The Capital Grille.  The residential market is picking up in Pittsburgh with more than 1,000 residential units underway or in the planning stages. Out of that, about 25 percent of these units are condominiums in various locations throughout the CBD.

Major developments to break ground in 2007 are the Cultural District Riverfront Development and the Majestic Star Casino. The Cultural District Riverfront Development will be the biggest development in downtown Pittsburgh history and is being developed by Concord Eastridge, a national real estate development firm from Washington, D.C.  The 6-acre project will serve as a premier location for downtown living and will include unique retail spaces, restaurants, parks, public art projects, pedestrian plazas and parking facilities. Plans call for seven new residential buildings, a street of townhouses, a four-star hotel and a performing arts venue. The $460 million dollar project is expected to break ground later this year. The city’s first casino is to be built on the North Shore, as announced in December 2006. The 400,000-square-foot riverfront casino will have four restaurants, three lounges and retail shops.

Investment activity progressed at a frenetic pace in 2006, with several institutional investors including, Kimco Realty Corporation, The Inland Real Estate Group, The Wells Real Estate Group and others buying real estate in the Pittsburgh area. The Grant Building, a 465,000-square-foot office building was purchased for $28 million by a local investor, the McKnight Development Group. National City Center, a 343,000-square-foot Class A office building, was sold for $23 million to an out of state private investor. 2000 & 3000 Park Lane, two suburban office buildings, were sold to Wells Real Estate, and Bridgeside Point Technology Center was purchased for $31 million by the Inland Real Estate Group. Wexford Plaza, a shopping center located in the North Hills of Pittsburgh, was sold for $31 million to Kimco. All the aforementioned properties were sold at well above market expectations and in 2007 the trend should continue for local and out of town investors to purchase high quality real estate in the Pittsburgh region.

— Jeffrey Ackerman is an executive vice president with CB Richard Ellis’ Capital Markets Group in Pittsburgh.

©2007 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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