F E A T U R E
more of the office buildings to apartments and condominiums. Public- and private- sector leaders seem to have recognized this. Policies and incentives are beginning to follow. It is clear that the future of Downtown Pittsburgh will be more residential, more 24/7. That will not be a bad thing, just a different thing.
Beginning with Citizens Bank’s 2015 announcement of its intentions to vacate its space at 525 William Penn Place, multiple corporations relocated from downtown or downsized dramatically. Few, if any, of these changes were the result of a negative Pittsburgh experience, but the market nonetheless saw almost two million square feet of space available for sublease. The impact of this was muted because of three positive market influences a decade earlier. UPMC added more than a million square feet of absorption to downtown when it moved its headquarters from Oakland to 600 Grant Street. Point Park University acquired and repurposed a handful of obsolete office buildings between Fourth Avenue and the Boulevard of Allies. And a dozen office buildings were converted to hotel or residential use. The vacancy rate plunged in Pittsburgh more because the denominator shrank. The numerator – the number of people occupying offices – remained almost the same. Pittsburgh remains a home to a large number of law firms, accountants, and financial service providers. That is a remnant of the demand created by the industrial corporations that called Pittsburgh home. Indeed, many of the firms located in Pittsburgh today still serve those industrial giants all over the world, even though the clients have not been in Pittsburgh for decades. Improvements in technology reduced the number of administrative staff needed. Changes in culture and design shrank private offices and eliminated walls. The net result has been a reduction in demand for space, even as the firms in downtown have expanded. These trends in office space were becoming impactful before the pandemic. Downtown’s most recent big lease news is a perfect example. Dickie McCamey & Chilcote announced the signing of an 80,000 square foot lease in Gateway Center, a reduction of 20 percent from its existing space at the same time the firm reached the 200-attorney level for the first time. Since March 2020, companies providing professional services, such as attorneys, accountants, and bankers, learned how to be effective for their clients while working outside the office.
Another factor making downtown occupancy more difficult is the increased competition from the areas just beyond the central business district (CBD), especially the Strip District. Developments like 3 Crossings, District 15, and Vision on 15th, have grabbed tenants that might otherwise have opted for the Golden Triangle, including a couple firms that were located there. While this trend effectively expands the perception of what is “Downtown Pittsburgh,” it draws tenants away from the traditional downtown offices. “When you see three million square feet being built on the periphery, where are those tenants coming from?” asks Jeremy Waldrup, president and CEO of Pittsburgh Downtown Partnership (PDP). “They will pull from the Golden Triangle and the 25 million square feet of office here.” Those are several strong headwinds working against occupancy levels in the CBD. None compare, however, to the disruption to office life that came from the pandemic. For all the regional market issues that might be making the downtown office market more difficult to lease more fully, the biggest problem has a simple solution: people need to return to the office. It is a simple solution that has thus far eluded the market. The impact of work from home, either as a full time or hybrid policy, is dramatic. Daytime visitation to downtown is about 77,000 people now, compared to 137,000 a day before the pandemic. For a submarket in which 77 percent of building stock is office, one of the highest shares of office space among major metropolitan cities in the U.S., that is a dramatic change. Waldrup notes that the return to office has crept up slightly in recent months but has essentially been range-bound around 20 percent since the late summer of 2021. The share of employees who have returned to work downtown is more than double that number, reaching 44 percent in June. The disparity between those numbers underlines the headache for downtown landlords and tenants. While nearly half the employees have come back to the office, only one in five occupies on any given day.
The Office Problem(s)
The principal problem facing the Downtown Pittsburgh office market is the same problem facing office markets everywhere: fewer people want to go to the office to work. That change in attitude, brought on by the necessity of working from home during the pandemic, may be temporary in nature; however, there are other forces acting as headwinds to office occupancy downtown.
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