Newmark Grubb Knight Frank Pittsburgh 2Q15 Office Market
Class DisparityThe first half of 2015 closed with vacancy at 16.0%, having inched upward by 60 basis points in the second quarter from 15.4% in the previous quarter. Class B product was responsible for most of the increase, with a 170-basis-point increase over last quarter. This translated into 201,211 s/f of negative net absorption during the second quarter. Fortunately, Class A vacancy rose by a negligible 10 basis points to rest at 11.9%, while Class A weighted asking rents continued on an upward path, increasing by $0.10/SF to end the first half of the year at $24.67/SF. Net absorption for high-quality space was also positive, albeit just barely, posting 31,789 s/f for second-quarter 2015. Central Business District (CBD)/Fringe sizablerenewals and transformations Class A vacancy in the CBD stood at 8.1% at the end of second-quarter 2015, an insignificant increase of 20 basis points from the first quarter. At the same time, weighted average asking rents for Class A space in the CBD maintained their upward trend, improving by $0.11/SF to end the first half of the year at $28.46/SF. Larger CBD lease commitments included law firm Eckert Seamans’ 120,000 s/f renewal at U.S. Steel Tower. PPG Industries also renewed, and expanded, its space at One PPG Place for a total of 369,000 s/f. Jones Lang LaSalle (JLL) announced that it will vacate space at 525 William Penn Place, which is on the selling block. The real estate company will occupy 54,000 s/f at Tower Two-Sixty. Currently under construction, the 128,000 s/f office building is slated for completion later this year. In property sale news, One Chatham Center sold to HSBC Bank USA at a sheriff’s sale; Elteq Partners I Limited Partnership was the previous owner. The sale price of $2,321.00 did not include the Marriott City Center hotel, which occupies a substantial portion of the property. The sale only affected the first floor of the building and floors three through nine. In the North Shore segment of the Fringe submarket, Faros Properties, the new owner of Allegheny Center, announced significant renovation plans to the property. The 1.2 million s/f complex will be rebranded as Nova Place, with improvements to the office space and common areas as well as the exterior plaza. In the Strip District, construction of Oxford Development’s 53,000 s/f Three Crossings progressed. Apple Inc.’s commitment for 26,000 s/f will bring the building to 100% occupancy prior to completion scheduled for later this year.Suburban Submarket AgainLands Largest New LeaseThe Southpointe segment of the South submarket witnessed the largest new lease commitment for the second quarter in a row, as Rice Energy committed to taking all of Zenith Ridge III. The 150,000 s/f building, which will complete later this year, will give Rice Energy the opportunity to consolidate its current Southpointe locations and provide the company the ability to grow. In the Parkway West submarket, GlaxoSmithKline announced the closing of its 150,000 s/f Millennium Center by the end of 2015. This property is currently owner-occupied and therefore not considered in the competitive landscape. However, dependent upon the pharmaceutical company’s plans for the asset, it may come back into play.Bayer Medical Care Inc. sold the 125,000 s/f 100 Global View Drive to Global View Partners LLC for $138/SF in the North submarket. Formerly an owner-occupied property not included in the office inventory, a new owner-investor and lease commitments by tenants, including a 60,000 s/f lease by Heartland Payment Systems, moved the property into the competitive stock. Carnegie Mellon University (CMU) announced a 425,000 s/f development on a two-acre site in the heart of the Oakland corridor of the Oakland/East-End submarket. The project will include hotel, office and retail space. This submarket has been the tightest in the marketplace for many years and is largely responsible for many of the startup companies feeding the Pittsburgh region. Home to four universities, top talent has led to major technology companies, such as Apple, Disney, Google, Intel, Microsoft and Uber establishing a presence and, in some cases, a significant presence in Pittsburgh.