F E A T U R E
The Market Square BRT station at Fifth Avenue and Liberty Avenue will be across from the Fairmont. Rendering courtesy Pittsburgh Regional Transit.
construction downtown. The flight to quality is simply outweighed by the difficulty and cost of construction in the CBD. “There are issues working downtown that you don’t have in the suburbs. There’s a lack of lay down issue area. There are more labor issues. And then there’s the time involved,” says Scalo. “The biggest issue in town today is still permitting. We can do three projects in the suburbs in the time that we can do one in the city.” “When you’re building in downtown it’s that much more difficult, especially if you’re trying to be sustainable. There is little room for laydown and staging so you need to make more trips to bring material in. There is little room for cranes. The duration of the project is longer in
the CBD because of how you stage, how you deliver, and the number of hours you can work,” explains Steve Guy, president and CEO of Oxford Development Co. “In downtown you also have to go more vertical, and the more vertical you go the cost per square foot increases and the efficiency decreases. The cost per usable square foot is going to go up in a CBD or urban core environment. In the urban fringe there is a natural benefit of at least three percent, probably five to eight percent, over what you can build in an urban core.” Guy argues that the math does not work for investors in the current market conditions. “We all compete for the same rental dollars. We don’t get better financing or
cap rate in the CBD. When you’re looking at the same rent dollar that extra $20 or $40 or $50 per square foot is a real differentiator in the yield,” says Guy. “If you have to charge the same rent, your investors have to be willing to accept perhaps 150 basis points lower yield. Even if I believe the demand side opportunity is equal, why would I invest where I would get 150 basis points lower yield?” Steve Guy’s rhetorical question assumes that demand for office space downtown is equal to other parts of the region, an assumption that is difficult to accept. None of the growth sectors of Pittsburgh’s economy – healthcare, robotics, artificial intelligence, or life sciences – are natural fits for high-rise office settings. (In fact, it’s easier to argue the opposite.) In general, office demand is weaker now regardless
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