Pittsburgh Office Market

RESEARCH 1Q 2020 PITTSBURGH OFFICE MARKET A NEW DECADE BEGINS WITH CURRENT CONDITIONS Despite a turbulent end to the first quarter of 2020, the Pittsburgh UNFORESEEN DISRUPTION office market remained relatively flat, as vacancy bumped up by 50 In unprecedented fashion, the coronavirus pandemic swept across the basis points over year-end 2019 to 17.4%, overall asking rents globe during the first quarter of 2020, producing a cascade of problems increased by $0.11/SF to $24.07/SF, and net absorption posted a whose full effects may not be realized for quite some time. The stock positive 47,979 square feet. market tumbled at an alarming rate, and companies scrambled to conduct “business as usual” during a rapidly evolving state of affairs. After committing to 106,000 square feet last year in the newly Despite a turbulent end to the first quarter of 2020, the Pittsburgh office completed Boardwalk I, Connective RX agreed to lease an additional market remained relatively flat, as vacancy bumped up by 50 basis 110,000 square feet in companion building Boardwalk II, currently points over year-end 2019 to 17.4%, overall asking rents increased by under construction in the Parkway West submarket. $0.11/SF to $24.07/SF, and net absorption posted a positive 47,979 square feet. MARKET ANALYSIS

CENTRAL BUSINESS DISTRICT (CBD) Asking Rent and Vacancy

After several years on the market, the former Post-Gazette building, $25.00 17.5% located at 34 Boulevard of Allies, was sold by Block Communications Inc to local property owner/developer DiCicco Development for $13.25 $24.00 16.7% $23.00 million, or $66/SF, in late December 2019. Included in the sale of the 15.9% 200,000-square-foot building, was an adjacent vacant lot. Ownership’s $22.00 15.1% initial plan is to redevelop the building into Class A office space. $21.00 Adding to an already saturated Class A office market, EQT Corporation $20.00 14.3% announced it was subleasing 275,000 square feet in its signature $19.00 13.5% downtown office building, EQT Tower. After a tumultuous start to the 1Q15 1Q16 1Q17 1Q18 1Q19 1Q20 marriage between Rice Energy and EQT, the energy giant has committed Asking Rent (Price/SF) Vacancy (%) to becoming more efficient. However, the company also plans to remain on five floors in its namesake building through the expiration of its Net Absorption (SF) lease, which will occur within the next few years. 650,000 Continuing the trend of tenants utilizing office space more efficiently, PricewaterhouseCoopers is considering rightsizing to 70,000 square 400,000 feet in One Oxford Centre, from 85,000 square feet in the firm’s current 150,000 CBD location at U.S. Steel Tower. -100,000

URBAN MARKETS OUTSIDE THE CBD -350,000 Developers continued to make headlines in one of the Fringe -600,000 submarket’s fastest-growing corridors. RDC Inc, developer of District 15 1Q15 1Q16 1Q17 1Q18 1Q19 1Q20 in the Strip District, announced a joint venture with Burns Scalo for The Vision on Fifteenth, a 275,000-square-foot mixed-use project located at MARKET SUMMARY 15th and Smallman streets. Construction of the speculative project, previously known as District 15 Beta, is expected to begin in the first Current Prior Year Ago 12 Month Quarter Quarter Period Forecast half of this year, with a tentative completion date in third or fourth quarter of 2021. Total Inventory 56 MSF 55 MSF 54.6 MSF  Vacancy Rate 17.4% 16.9% 16.3%  At the same time, Rugby Realty opened the door for a potential sale of

its four-acre site at 21st and Smallman streets, which had been slated Quarterly Net Absorption 47,979 56,557 220,351  to become Brickworks, a 390,000-square-foot project. Meanwhile, Average Asking Rent $24.07 $23.96 $23.90  Oxford Development’s 3 Crossings project progressed this quarter, with

the 110,000-square-foot Stacks completing and the adjacent 150,000- Under Construction 739,661 904,200 986,700  square-foot 75 Hopper Place moving forward. The developer is getting Deliveries 445,490 95,000 157,371 

ready to construct a 600-space parking garage to accommodate parking Spear Street Capital announced plans for the 14-acres it had purchased requirements for the next phase of 3 Crossings. Furthermore, JMC last year in the Lawrenceville neighborhood of the Oakland/East-End Holdings revealed plans for 1501 Penn Avenue, a new, 500,000-square- submarket. The property includes an existing warehouse that Spear foot building that would include parking to accommodate 900 vehicles. Street is expecting to redevelop into 265,000 square feet of office space The project, which is located at the former site of the Wholey building, with a courtyard in the center of the building. The property owner is would require approval by the Planning Commission and pre-leasing of a seeking a sizeable variance for surface parking. Furthermore, and portion of the building in order to move forward. potentially making way for future development, Limbach Holdings has relocated the industrial segment of the company to 797 Commonwealth Aurora Innovation, a future transportation company co-headquartered in Drive in Thorn Hill Park in Warrendale. The move leaves an obsolete Pittsburgh, is rumored to have a strong interest in fully occupying the property on approximately 4.25 acres in its wake at 39 35th Street. 140,000-square-foot 1600 Smallman Street, which is undergoing renovation. Should a deal come to fruition, the transaction will likely be In Oakland proper, Carlow University’s proposed campus master plan one of the larger leases of 2020 in the urban marketplace. was shared with the Oakland Planning and Development Corporation. In conjunction with developer Elmhurst Group, the University hopes to The tightest submarket in the Pittsburgh region experienced a 370- construct a 400,000-square-foot building with 300,000 square feet basis-point increase in vacancy during the first quarter of 2020, offered as commercial space. The project is expected to go before the resulting from the completion of the 160,200-square-foot Riviera along Pittsburgh Planning Commission later this year. Second Avenue. The project was a speculative development, with 21,000 square feet preleased and other deals reportedly pending. That Rumor has it that Apple will assume the 30,200-square-foot lease the said, the Oakland/East-End submarket maintained the lowest vacancy, University of Pittsburgh had committed to last year at the former ending the quarter at 10.8%, and the highest overall asking rents, Pittsburgh Athletic Association clubhouse. Walnut Capital is currently hovering at $31.36/SF. redeveloping the iconic Fifth Avenue building.

In the East Liberty neighborhood, an affiliate of The Davis Companies, SUBURBAN SUBMARKETS purchased the 50,000-square-foot Club One and an adjacent lot for $6.55 million. Ownership has not yet announced plans for the property. Vacancy in the North submarket ended the first quarter of 2020 at Further, Highwoods Properties acquired a lot at 6135-6145 Penn Avenue 15.0 %; a 150-basis-point increase over the end of 2019. A few factors for $2.4 million. The 11,200-square-foot property was purchased from contributed to the increase, including the completion of Innovation Anthony Dolan, owner of Alphabet City Company. No plans for the site Pointe in Marshall Township, which brought 90,000 square feet of have been announced. quality Class A space to market.

The long-awaited construction of LG Realty Advisors’ Liberty East The beginning of the new decade brought with it investor activity in the development was finally underway in East Liberty, when the government North submarket. New York-based Fortress Credit Advisors LLC is ordered a freeze in construction activity as a means of curbing the believed to be the new owner of the Westinghouse Electric headquarters spread of the coronavirus. The former Penn Plaza development site has in Cranberry Township. The 824,000-square-foot complex was sold by had its share of fits and starts over the past five years. Phase one of the Columbia Property Trust to CF Cranberry LLC, a subsidiary of Columbia project will consist of a 281,649-square-foot building with ground-floor to Fortress, for $180 million. Furthermore, the former Verizon Wireless retail anchored by Whole Foods, which is expected to be completed at building located at 200 Allegheny Drive in Marshall township sold for the end of 2021. Moving farther east into North Point Breeze, M*Modal, $3.45 million, or $65/SF. The 52,836-square-foot building was sold by a division of the 3M Company, committed to a 53,000-square-foot lease Talenfeld Properties to FourPenn Partners LLC, which plans to make in 1714 Thomas Boulevard, which ICON Development is renovating into upgrades to the property. 142,000 square feet of office space.

S. PAYROLL EMPLOYMENT CONSTRUCTION AND DELIVERIES

Total Nonfarm, Not Seasonally Adjusted, 12-Month % Change Square Feet, Millions

3.0 1.8 1.6 2.0 1.4 1.0 1.2 1.0 0.0 0.8 0.6 -1.0 0.4 -2.0 0.2 Feb-15 Feb-16 Feb-17 Feb-18 Feb-19 Feb-20 0.0 United States Pittsburgh 2014 2015 2016 2017 2018 2019 2020 Source: U.S. Bureau of Labor Statistics Deliveries Under Construction

In tenant news, Kraft Heinz committed to renew its 43,000-square-foot construction. The company is expected to bring more than 1,500 jobs lease at Keystone Summit Corporate Park. South College of to the region and to occupy both buildings this year. The Parkway West Tennessee inked a deal at Cranberry Woods for 25,000 square feet, has had its share of challenges over the past few years: Overall and Phoenix Rehabilitation signed for 19,000 square feet in the vacancy in this submarket rested at 17.5% at the close of the first complex. quarter of 2020, after hitting an all-time high of 24.2% in 2015.

Traction continues in the Parkway West submarket. At the end of LOOKING AHEAD 2019, the 235,000-square-foot 2000 Park Lane sold for $41.4 million or, $176/SF. The building was sold by Atlanta Property Group to Myla Although the full extent of the fallout from the COVID-19 pandemic will USA LLC through Property Income Advisors LLC. Furthermore, after be unknown for some time, every dark cloud has a silver lining. During committing to 106,000 square feet last year in the newly completed a time of political unrest and division, people have come together to Boardwalk I, Connective RX agreed to lease an additional 110,000 combat the virus and mitigate its economic damage. Businesses large square feet in companion building Boardwalk II, currently under and small have stepped up to do whatever they can, healthcare workers have remained vigilant in tending to the sick, and government leaders have put aside partisan bickering to keep the economy afloat.

SUBMARKET STATISTICS

Class A Class B Total Under Total Total Qtr YTD Asking Asking Inventory Construction Vacancy Vacancy Absorption Absorption Rent Rent (SF) (SF) (SF) Rate (SF) (SF) (Price/SF) (Price/SF)

CBD 20,253,818 0 3,807,615 18.8% -80,699 -80,699 $29.64 $22.88

Fringe 7,254,077 0 1,233,936 17.0% 59,785 59,785 $28.74 $21.49

Oakland/East End 3,017,389 574,561 327,029 10.8% 36,041 36,041 $34.12 $24.31

City of Pgh Total 30,525,284 574,561 5,368,580 17.6% 15,127 15,127 $29.92 $22.38

East 3,372,464 0 805,789 23.9% -24,695 -24,695 $21.13 $16.99

North 7,614,439 55,100 1,142,950 15.0% -76,568 -76,568 $24.97 $20.60

Parkway West 8,837,428 110,000 1,549,867 17.5% 141,002 141,002 $23.89 $19.44

South 5,450,128 0 839,562 15.4% -6,887 -6,887 $22.14 $19.35

Suburban Total 25,274,459 165,100 4,338,168 17.2% 32,852 32,852 $23.18 $19.03

Pittsburgh 55,799,743 739,661 9,706,748 17.4% 47,979 47,979 $26.59 $21.07

GERARD MCLAUGHLIN LOUIS OLIVA, CCIM, SIOR PAMELA LOWERY Executive Managing Director Executive Managing Director Vice President Research & Marketing 412.434.1036 412.434.1058 [email protected] [email protected] PATTY BEASOCK Research Analyst

Newmark Knight Frank has implemented a proprietary database and our tracking methodology has been revised. With this expansion and refinement in our data, there may be adjustments in historical statistics including availability, asking rents, absorption and effective rents. Newmark Knight Frank Research Reports are available at www.ngkf.com/research

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