Commercial real estate company JLL has released a report on Pittsburgh’s Downtown real estate market that finds rental rates and occupancy on the rise.
As of first quarter 2017, 11.7 percent of Downtown’s skyline is vacant, down from 12.1 percent last year. The national average is 12.9 percent.
Fifth Avenue Place, Three PNC Plaza and BNY Mellon Center are all leased to 100 percent capacity. Eight “trophy” buildings, such as the US Steel Building and 1 PPG Place, have an average vacancy rate of just 6.3 percent.
The study surveyed 16 Downtown skyscrapers that are at least 100,000 total square feet, were built or have had significant renovations since 1985, or have a high-profile tenant or location. The average rent in these buildings is $30.13 per square foot.
“It just shows the continuing strength of our market,” says Dan Adamski, JLL’s managing director. “It’s driven in part by a lot of outside interest in Pittsburgh.”
Case in point: Adamski says that 18 of the last 20 buildings that have sold Downtown were sold to non-Pittsburghers.
Even the most expensive properties Downtown charge in the low-to-mid-$30 per square foot range, and any new skyscraper would have to charge in the low 40s to be profitable.
As a result of this $10 per square foot gap between existing and future buildings, potential real estate investors can’t get the financing to build speculatively, says Adamski, which helps explain why there are no new skyscrapers under construction Downtown.
“When they make these acquisitions, almost universally they are upgrading the building, adding amenities, things that increase the property value so they can raise the rental rates, so that’s what you’re seeing occur.”
Adamski says more and more companies are leaving the suburbs in favor of urban centers in part to attract millennial workers who eschew traditional office life, and he cites the recent relocation of Microbac Laboratories to the North Side’s Nova Place as an example.
“Yes, it is somewhat difficult to get into town, and parking is always an issue, but it’s an issue because that’s where everyone wants to be.”
Another example can be found with JLL themselves, who in 2016 opened their 54,000-square-foot regional headquarters in the newly-built JLL Center at Tower Two-Sixty in Market Square.
“We could have located in the suburbs, we could have gone anywhere when we decided to move our regional headquarters, and we chose to stay Downtown because of the vibrancy going on,” says Adamski.
The report is part of JLL’s annual Skyline Review that profiles the state of high-rises in 57 U.S. and Canadian markets. Nationally, the report found that rents in skyline building remain in record territory, although construction is slowing down nationally.