Hanna Commercial Pittsburgh Office Market Report | Q2 2024

Pittsburgh’s Central Business District (the “CBD”) is the largest office submarket in the Pittsburgh MSA. The CBD boasts more than 27.6M s/f, which represents nearly 32% of total market inventory. Since having 500,000+ s/f of office space hit the market in a single quarter a year ago (Q2 ’23), the total aggregate net absorption in the CBD in the past year was -260,446 s/f; this indicates a pick-up in activity, although negative net absorption continues. Simultaneously, vacancy in Q2 ‘24 in the CBD is the highest its been (15.1%) since Q2 ‘20 and is expected to continue rising despite increasing leasing velocity by more than 10% per quarter since Q3 ’23.

The sole new office construction project in the CBD, FNB Financial Center, is experiencing a successful lease-up campaign following FNB’s commitment to taking 60,000+ more s/f in the tower. The commitment bringing FNB’s total footprint to 230,000 s/f in the 460,000 s/f tower, which brings the project to 70% pre-leased; the project should be completed in October of 2024. FNB’s expanded presence in what will soon be the CBD’s newest tower (and the highest-priced office building in the submarket) is a bright spot in an otherwise challenging office market.

Conversely, 800,000+ s/f of office supply has been removed from the market as a result of Hertz Investment Group’s announcement that it pursues to sell Three Gateway Center (375,000 s/f) in lieu of converting the building to residential, and a similar announcement made by Rugby Realty regarding Gulf Tower (430,000 s/f), and its joint-venture with Left Lane Capital to convert the building to residential/hospitality. The loss of supply equates to 2.89% of the current total market, which will have an interesting impact on vacancy rates as both owners, Hertz and Rugby, have had success in relocating tenants within their respective portfolios; the balance of Hertz-owned Gateway Center exceed 1M s/f office, and Rugby’s remaining holdings (Koppers Building and Frick Building) also approach 1M s/f.

Deal Spotlight:

In line with a move that’s becoming all too common, Fox Rothschild LLP, a law firm based in Pittsburgh’s CBD, will be Pittsburgh leaving behind its space at BNY Mellon Center to relocate to Six PPG Place, which is a theme that is expected to continue over the next several years. By now, it’s somewhat well-known that the 1.6M s/f BNY Mellon Center is master-leased to Bank of New York Mellon Corp. thru 2028. Further, BNY has indicated its intentions of relocating its workforce in BNY Mellon Center to 500 Ross St., its current Client Service Center, which it owns and is currently upgrading to make room for a consolidation. That said, BNY Mellon as the master tenant is not extending the term for existing (sub)tenants beyond BNY’s lease expiration in 2028.

The move by Fox Rothschild is almost identical to the one made by Steptoe & Johnson PLLC when it relocated from BNY Mellon Center to One PPG last November.

Not only does the deal support a variety of local narratives (professional services firms - especially law firms – are leading the charge in the office leasing market, office tenants are gravitating to the Stanwix corridor within Downtown Pittsburgh, etc.) but it is yet another reminder that there exists a looming threat to the CBD office market as 500 Grant St. is expected to be delivered back to its owner, MetLife, completely vacant in 2028, and all 1.6M s/f of office space that comes with it.