Pittsburgh near bottom of U.S. cities in office vacancy rates
Pittsburgh Business Times - by Ben Semmes
The Pittsburgh area's apartment market performed near the middle of the U.S. pack when measured by vacancy rates in the fourth quarter of 2006, but its office market sat near the bottom in a study put together by Reis Inc. real estate information service.
The New York-based service released a report this week on the office and apartment vacancy rates in 79 metropolitan areas.
Only Detroit (21.3 percent) and Dallas (21.1 percent) posted higher vacancy rates for their office markets than Pittsburgh, which was calculated at 19.1 percent for the quarter.
That's a slight drop from the fourth quarter of 2005, when Pittsburgh's vacancy rate was at 19.5 percent.
Pittsburgh's office vacancy rate has been stagnant for years, floating around 20 percent since 2003, according to the report.
For 2006, nearly 9 million of 46.85 million square feet of office space on the market remained vacant -- almost identical to the 2005 figure.
Meanwhile, Washington, D.C.; New York City; Orange County, Calif.; Tacoma, Wash.; and Miami led the pack for the fourth quarter, with office vacancy rates at 7.9 percent or less.
Ned Doran, a broker with Downtown-based GVA Oxford who has been working in the local real estate market for more than 30 years, said that, although vacancy rates improved temporarily during the dot-com boom, the transition that took place in the 1980s and 1990s continues to be a challenge for Pittsburgh's office market.
"Pittsburgh went from a mineral and metal background to a mixed bag today," Doran said. "The downsizing ... of major corporations and companies has had a mixed effect."
The drain of corporate headquarters leaving Pittsburgh, most recently with the ongoing merger of Mellon Financial Corp. and The Bank of New York Co. Inc., has exacerbated the problem, Doran said.
"Corporate headquarters moving from Pittsburgh to New York -- this is a trend that has been continuing," Doran said.
Still, Pittsburgh's average asking rents for all office classes, at $19.13 per square foot for the quarter, ranked in the middle of the pack, according to the report. Markets with similar commercial asking rents included Cleveland ($18.28); Charleston, S.C. ($19.86); and Denver ($19.23) while larger markets like Boston, San Francisco and Washington, D.C., all posted rents of more than $30 per square foot.
Pittsburgh's real estate community is hoping some big deals in 2007 -- including plans by University of Pittsburgh Medical Center to take upwards of 200,000 square feet of space at the U.S. Steel Tower and the possible sale of the empty Union Trust Building and its 585,000 square feet, both Downtown -- will help turn things around.
Growth from Indianola-based manufacturer Medrad Inc. also will affect the office market, as the company is now building a new corporate headquarters at Tech 21 Research Park in Marshall Township.
Jason Stewart, a broker with Downtown-based Grubb & Ellis, expects local companies will fill gaps in the office market.
"I think that most of Pittsburgh's growth should be anticipated to be organic," he said. "Big companies don't generally hop around from city to city. There are a lot of things going on. ... A number of other companies are adding jobs. It is active."
APARTMENTS GALORE
The report found Pittsburgh's apartment market mirrored rent growth nationally, which averaged a 0.8 percent increase in asking rents to $983 a month in the fourth quarter. Pittsburgh showed an average 0.6 percent increase in asking rents to $786 a month.
Yet the area's apartment vacancy rate of 7.3 percent ranked in the bottom half of the cities surveyed, with about 50 metro areas posting lower rates. Pittsburgh's apartment vacancy rate in the fourth quarter of 2005 was 7 percent, according to the report.
In the report, Cleveland was ranked with a lower apartment vacancy rate, at 6.5 percent, while Columbus showed a higher vacancy rate, at 7.9 percent, as did Cincinnati (8.7 percent) and Detroit (7.4 percent).
Over the past several years, the number of apartment units occupied in Pittsburgh has remained fairly constant, at about 78,000 units, while the number of units has grown gradually, pushing the vacancy rate up from a low of 3.5 percent in 2001.
Still, the report and Pittsburgh-area real estate professionals predict the market's vacancy rate will drop over the next few years.
Helen Hanna Casey, president of O'Hara-based Howard Hanna Real Estate Services Inc., which operates in Ohio, West Virginia, New York state and Pennsylvania, said she believes the Pittsburgh apartment market is fairly strong, although the city has struggled to bring rental units Downtown.
Casey said Cleveland has more downtown rental units available than Pittsburgh, but she expects that planned residential development in Downtown Pittsburgh will change that.
bsemmes@bizjournals.com | (412) 208-3829
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