NORTHEAST SNAPSHOT, AUGUST 2011

PITTSBURGH INDUSTRIAL MARKET

The Pittsburgh industrial market has remained relatively stable over the last several years, and 2010 along with the first quarter of 2011 stayed true to the trend. The market encompasses a five-county region in southwestern Pennsylvania, centered around Allegheny County and including Butler, Beaver, Washington and Westmoreland counties. The total market is roughly 120 million square feet and has a current vacancy rate across all industrial product types of approximately 9 percent. This vacancy rate is somewhat deceiving due to the availability of several significant spaces, which skew the rate upward. Additionally the lion’s share of the vacancy lies in the Class B and C product types. The vacancy rate for Class A product is closer to 5.5 percent.

The former Sony Plant, located to the east of Pittsburgh in Westmoreland County, was vacated in the second quarter of 2010. It represents 2.5 million square feet, of which 2 million square feet is vacant. The property is being marketed primarily to value-add and light manufacturers with the goal of replacing the jobs that Sony’s departure created. This represents both a tremendous opportunity and a challenge, as subdividing that amount of space to accommodate the needs of multiple users is both costly and logistically difficult. Two other major blocks of space, one in the northeast market and the other west of Pittsburgh, combine to represent an additional 1.1 million square feet. The building in the northeast was recently vacated by Bay Valley Foods, which relocated outside of the market. This 578,000-square-foot building is now being marketed for lease to single or multiple tenants. The building to the west of the city was most recently occupied by a furniture retailer both as their corporate office and warehouse, and is 533,000 square feet. It is currently under contract to a local investor who will look to reposition the property and lease it out to multiple warehouse tenants.

Aside from a few significant blocks of vacant space, the industrial market is and has been tight for the last several years. Unfortunately, there appears to be no immediate relief on the horizon in the form of new product coming on line. There are only a handful of developers who are actively creating product; two in the flex market, which constitutes higher office ratios, and only one on the Class A warehouse side. Sampson Morris Group and Kossman Development are the flex developers, respectively bringing 280,000 square feet and 44,000 square feet to the market in 2010. Buncher, the region’s largest warehouse and industrial developer, recently broke ground on an 80,000-square-foot high bay building, which will be part of the 341,000-square-foot Jackson Pointe Commerce Park, and located in the extremely tight Cranberry market.

Pittsburgh has been relatively insulated from the effects of the recession in part because of the success of the local business sector, and in part because of the conservative nature of the local development community. We do not experience overbuilding during the peaks, so we don’t suffer from huge vacancy during the troughs. The success of the natural gas industry that is centered around the Marcellus Shale formation and the continued growth of Westinghouse Nuclear, the technology sector, and our world-renowned education and medical institutions have combined to drive demand in both the office and industrial markets.

The downside of our conservative nature is the lack of quality options available to companies evaluating the Pittsburgh region in contrast to other markets across the country. We have several pad-ready sites able to accommodate 100,000-square-foot-plus buildings in the Washington, Allegheny and Westmoreland submarkets, but very few existing buildings that offer immediate occupancy. The good news is that we now have these pads available. The sites have been developed primarily by local or regional economic development groups in response to an outcry for options from both site selection consultants and the brokerage community. There are several sites that have been fully entitled by developers, but they have indicated they will not build without lease commitments. It is our hope that as the economy continues to pick up nationally, it will instill the confidence needed to break ground on several of these projects on a speculative basis.

While Pittsburgh has weathered the storm and our vacancy rate is healthy, the real story is that there is a need for additional well-located Class A inventory.

— John Bilyak is principal & director of Industrial Brokerage with Colliers International’s Pittsburgh office.

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