Office rentals growing in Pittsburgh region

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Leasing demand from natural gas and other energy companies is helping to bolster the U.S. office market and drive growth in cities such as Pittsburgh, where rents are at their highest in more than a decade.

Greater Pittsburgh, along with Houston and other cities with concentrations of energy-related workers, is outpacing national growth in rents and occupancy, according to a report Monday from Reis Inc., which showed U.S. office landlords had net gains in leased space for a second year in 2012, following three years of declines. Tenants in energy, along with technology, helped push the national vacancy rate to a three-year low.

In the fourth quarter, Greater Pittsburgh office rents after landlord concessions climbed 1 percent from the previous three months, compared with 0.8 percent for the U.S., while the area's vacancy rate held at 15.5 percent, below the national average of 17.1 percent, New York-based Reis said.

Pittsburgh tenants paid an average of $17.68 a square foot in the fourth quarter, the highest since 2000, ranking it 12th out of 79 markets for growth. In Houston, effective rents rose 1.7 percent, the fifth-most nationwide.

"In a market that's been very choppy, the energy sector has been one of the bright spots," said Dennis Friedrich, chief executive officer of Brookfield Office Properties Inc., the New York-based owner of Houston's Allen Center and properties in other energy-dominated markets, including Denver and Calgary.

The fourth-quarter U.S. office vacancy rate, down from 17.2 percent in the previous three months and 17.4 percent a year earlier, was the lowest since the end of 2009, Reis said.

Of the top 10 markets for year-over-year growth in asking rents, seven were centered on technology or energy, according to the research company. San Francisco had the largest gain, at 6.6 percent.

In the Pittsburgh area, Williams Cos., the third-largest U.S. pipeline operator, is expanding for work connected to the Marcellus Shale, a layer of gas-saturated rock that lies more than a mile underneath much of Pennsylvania.

The company, based in Tulsa, OK., plans to move about 240 employees to a bigger regional office in Washington County after outgrowing space nearby, said Julie Gentz, a spokeswoman. Williams agreed in June to rent 100,000 square feet in the Southpointe business park where companies including Range Resources Corp. and Consol Energy Inc. have regional or national headquarters.

More than 50 companies began operations in the Pittsburgh area in 2011, according to the Pittsburgh Regional Alliance, a group that seeks to attract capital investments to the 10-county region.

Range Resources in November 2011 built a new regional headquarters in Southpointe that houses about 300 employees, said Matt Pitzarella, a spokesman. The Fort Worth, Texas-based company also leases another 110,000 square feet in Washington County as an operations center, he said.

Range was the first energy producer to successfully draw natural gas from the Marcellus formation, now the largest producing gas field in the U.S., according to the company.

In 2007, when Range leased its first office in southwestern Pennsylvania, "we were the only drilling-related company in Southpointe," Mr. Pitzarella said. "Today there are approximately 65 companies in the park who work in our industry, and almost all of them do work for Range."

Pennsylvania ranks second behind Texas in having the largest number of jobs in the unconventional energy industry -- fuel extracted through methods other than wells, according to IHS Global Insight, an Englewood, Colo.-based provider of business information.

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