Spurred by growth in the medical, education, financial services, and computer software industries, and eyed by energy companies that are seeking to develop the nearby Marcellus shale gas tracts, Pittsburgh—a city that was once the butt of jokes—is thriving. Downtown office rents are expected to rise 7.5 percent this year—more than triple the national average—and PNC Financial Services Group is developing a 40-story building downtown.
Today, Pittsburgh offers numerous opportunities for developers; the Lemieux Group, for example, is expected to demolish the former home of the Pittsburgh Penguins hockey team, opening up a 28-acre (11.3-ha) redevelopment site. Some insiders, however, say these opportunities won’t be around forever. “You’re going to have to be ready to make a move,” advises Lynn R. DeLorenzo, president of DeLorenzo & Co. LLC, a real estate developing and consulting firm based in Moon Township, Pennsylvania.
How did Pittsburgh transform itself?
Through vision and leadership—and lots of calculated risk, says Tom Murphy, a senior resident fellow, ULI/Klingbeil Family Chair for urban development, and a former mayor of Pittsburgh. “My focus when I was mayor was the Pittsburgh riverfront and thousands of acres of vacant steel mills that were abandoned and some in bankruptcy,” he says. “The city was in tough financial straits. We had to make a decision about how to invest in the future. So we decided to buy 1,500 acres [607 ha] of property and began to partner and share the risk in developing these old industrial sites with developers. It was very controversial and, ultimately, very successful.”
The city also formed aggressive partnerships with the university sector and in the research technology community, resulting in billions of dollars in investments in the city. “We worked hard to transform Pittsburgh visually and culturally with a different kind of economy,” says Murphy. “The key from my point of view was that we were willing to bet on the future and not just continue to manage the decline.”
In addition, the City of Bridges didn’t experience the highs and lows that other areas did during the real estate run-up in the middle of the previous decade, DeLorenzo says. “The Pittsburgh economy has been very steady—not particularly exciting, but steady,” she continues. “The diversification of our economy is really the key. We have eight Fortune 500 companies.”
The Marcellus shale gas field—which extends through the Appalachian Basin and contains large untapped natural gas reserves, thus making it attractive for energy development—is propelling much growth in the region, says John Watt of Pittsburgh-based Barone, Murtha, Shonberg & Associates, a commercial consulting and appraisal company.
“The Marcellus shale development is not likely to subside in the near future,” adds Watt, ULI Pittsburgh district council chair. “Medical/technological research and development also will continue to expand and back-office operations for institutions such as PNC, BNYMellon, and Citizens Bank continue to be strong. There is also continued improvement in the housing market, continued decline in CBD [central business district] vacancy, and increasing rental rates.”
The PNC Financial Services Group, Inc., plans to construct one of the world’s most environmentally friendly skyscrapers—the Tower at PNC Plaza—in the city. When completed in 2015, the approximately $400 million building will serve as PNC’s executive offices.
CBRE Econometrics is forecasting an increase in office rental rates averaging 7.5 percent in the city for each of the next five years, says Christina M. Bucciero, an associate in the Pittsburgh office of CB Richard Ellis. “We are continuing to see office space being absorbed through accretive tenant demand, while simultaneously no new product is being built and a number of older office buildings are being converted to other uses, thus reducing the supply,” she continues. “Marcellus shale-related demand has just about absorbed all vacancy in the southern suburbs, and is now creeping into Cranberry and the Parkway West, further tightening those markets. We could have almost every submarket for Class A space entering the mid to low single-digits in terms of vacancy rates.”
Those interested in real estate opportunities in Pittsburgh should act fast, advises DeLorenzo, a member of ULI Pittsburgh. “Right now, our real estate is undervalued, so it’s a good opportunity for people who want to expand and who want to invest in the future.”
Among other advice:
- Forget stereotypes. “Don’t look at Pittsburgh’s past, but its future,” DeLorenzo says. “We have an amazing skyline and boundless opportunities.”
- Find the local real estate professionals who are doing the deals and who know the market, says Bucciero. “Get an overview of the current market status,” she continues. “Make sure you understand the market, the submarket, and your own micro market.”
- Establish a relationship with local financial institutions. “Make sure you have your funding ready because when the right opportunity presents itself, you may need to pull the trigger right away,” Bucciero adds.
- Do your homework. “Opportunities exist in the south and north suburban office/industrial markets,” says Watt. “Look for suburban residential opportunities that lie between the major job centers—Pittsburgh CBD/Oakland, I-79 Cranberry, I-79 Washington County.”
- Take risks. “Cities must partner with the private sector and share the risks and the rewards,” counsels Murphy. “You’re competing with capital that a developer could take to the suburbs, so you need to make any propositions interesting to the developer, with well-thought-out public/private partnerships.”
- Compete fiercely with the suburbs. “To ensure a healthy downtown in Pittsburgh, we partnered with PNC, Mellon Bank, and others to keep jobs in the central business district. We put in subway stops for companies as a way to compete, financed through bonds. You have to equalize the playing field.”