Real estate investors give long looks to Pittsburgh
Jeffrey Ackerman, an executive vice president of the CB Richard Ellis Investment Properties Group, inside its offices in the U.S. Steel Tower, Downtown.
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It wasn't that long ago that real estate investors treated Pittsburgh much like a clunker in a fancy car lot that didn't even deserve a glance.
But these days, Downtown is getting a lot of looks, thanks to a real estate market that is giving larger cities like San Francisco, Boston and Washington, D.C., a run for their money.
Pittsburgh, you might say, has gone from clunker to Cadillac.
No one knows that better than Jeffrey Ackerman, a CB Richard Ellis executive who proved to be a popular guy at a recent company symposium for institutional investors in Scottsdale, Ariz. Everyone, it seemed, wanted to know about Pittsburgh.
"We are definitely getting more investors," he said. "For the first time some of them are interested in taking a serious look at investing in Pittsburgh, whereas before they would not."
Steve Guy, president and CEO of Oxford Development Co., agreed.
"Pittsburgh has become a focal point of many investors who would not have looked here in the past. I think our market is viewed with a tremendous amount of stability," he said.
The reasons for the investors' interest include rising occupancy and rental rates, job growth and strong core industries like energy, financial services and health care, all of which make for a strong real estate market.
Pittsburgh also remained relatively stable while housing and real estate values plunged in most markets during the recession. That, too, caught the eye of investors.
Both Mr. Ackerman, executive vice president of the investment properties group, and Peter Sukernek, vice president and general manager for Howard Hanna Commercial Real Estate Services, used the word "robust" to describe the state of the Downtown market.
"I think it's the healthiest it's been since the early 1980s," said Mr. Ackerman, referring to a period that saw the completion of major office towers such as One Oxford Centre, PPG Place and Fifth Avenue Place.
One big reason the market is doing so well is the influx of new or returning tenants to Downtown.
UPMC has established its headquarters in the U.S. Steel Tower on Grant Street. EQT Corp. moved from the North Shore to the former Dominion Tower building on Liberty Avenue. First Niagara Bank has taken space Downtown as it has expanded into the market. And the state, in closing the State Office Building, has redistributed employees to Piatt Place, 11 Stanwix Street and the Chamber of Commerce building, all in the central business district.
The moves have driven Downtown occupancy rates for the top space into the lower 90 percentile. Gerry McLaughlin, senior vice president of Grubb & Ellis, said the occupancy rate is currently running in the 93 percent to 94 percent range.
"That market is up there where the landlords like to see it. It's a good range, especially when you compare it to other cities," he said.
At the same time, leasing rates for the same type of space have increased by as much as 15 percent over the last 18 to 24 months, Mr. Ackerman said.
As a result, "Downtown is probably in one of the strongest positions" it has been in for quite some time, Mr. Sukernek said.
"The major office buildings have high occupancy rates and there's a lot of development activity going on," he said.
Some building owners have tested the strength of the market by offering their buildings for sale. Los Angeles-based Hertz Investment Group put the four-building Gateway Center on the market and then pulled it off. The Blackstone Group of New York did the same with EQT Plaza, or the former Dominion Tower building.
Among those still on the market are the venerable Macy's building on Smithfield Street, the Henry W. Oliver building a couple of blocks away, and the 11 Stanwix Street building and the former Manor Building, both owned by Rugby Realty.
In the case of the Gateway Center and the EQT buildings, "The owner of those took the opportunity to test the market and see if they could do well and make a profit," Mr. Sukernek said. "They felt that if they weren't going to make what they wanted to, they were perfectly happy to continue to hold them."
If there's any downside, it's with the class B and class C office space, which is generally smaller and older. There's still plenty to spare, although Mr. McLaughlin said that could be changing as more and more of the top class A space is filled.
"That eventually will get absorbed, but it will take time," he said.
At this point, 2011 looks to be a pretty good year as well. The brokers see the class A market continuing to sizzle.
Mr. Ackerman said he expected class A rental rates to increase another 6.5 percent over the next 12 months.
Likewise, Mr. Sukernek sees additional growth this year. Still to be revealed, he said, is what is planned by an unknown buyer who has purchased seven properties on Wood Street and Fifth and Forbes avenues in the heart of Downtown.
The buyer, most likely PNC, apparently is planning an office development there. Mr. Sukernek also sees more "fill-in" retail popping up Downtown as more people move in, either to offices or residential units. He believes that most will be local entrepreneurs.
"Success breeds success. Confidence breeds confidence. The general economy has turned the corner. We're stronger Downtown than many places in the country. We're seeing those areas that we've struggled with for 15 years being developed," he said.
"As this happens, people will be more confident, and we're going to continue to grow, to change the face of Downtown," Mr. Sukernek said.
As for the overall regional market, Mr. McLaughlin and Mr. Sukernek said both the Cranberry and Southpointe areas are doing well, with a lot of growth.
"I would put those two markets up against any other market in the country right now," Mr. McLaughlin said. "They're pretty strong markets."
Oakland also has continued to be hot, thanks to the growing demand for space by the universities and UPMC.
The same could not be said of the east and west markets, which have slowed in recent years. The east suffered with the loss of Westinghouse, which moved to Cranberry, Mr. McLaughlin said, but that is not the only problem.
"That market is a more mature market, and the buildings are older, and it's had an effect," he said.
First Published March 22, 2011 12:00 am