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News release

PITTSBURGH, PA

New Development & Planned Consolidation Brings Change to the Pittsburgh Skyline

JLL releases its 2015 building-by-building Skyline report on Pittsburgh’s commercial real estate market


PITTSBURGH, June 3, 2015 – Pittsburgh has boasted one of the lowest Skyline vacancy rates nationwide over the last four years, hovering at roughly 5 percent. With leverage firmly in the hands of the landlord, the average non-Trophy asking rent is among the highest in the region at $27.11 per square foot, and the average asking rent for Trophy space sits at $30.75.

Nationally, the rent gap between Trophy and non-Trophy space has widened significantly in recent years, according to JLL’s 2015 Digital Skyline. But, in Pittsburgh, the gap stands at only $3.64 per square foot.

“Trophy rents are at a high water mark and will remain fixed over the coming year,” said Andrew Batson, Senior Research Analyst at JLL. “Vacancy among Pittsburgh’s Trophy assets is minimal, which indicates a landlord-favorable market into 2017.”

With new construction and planned consolidations, Batson added that change is on the horizon.

“Additional vacancy is expected in the near-future for non-Trophy assets, which may cause a fluctuation in rents,” he said. “But, this additional availability is not scheduled to hit until 2016 and into 2017.”

JLL’s proprietary 2015 Digital Skyline identifies and tracks micro-segments of 47 city centers across North America. The Skyline features Trophy and Class A buildings where tenants and investors alike focus demand for office space in the highest-quality and most-efficient assets.

Foreign investors show increased interest in the U.S. skyline

Foreign capital is playing a starring role in commercial real estate transactions across the U.S. Of the $35.3 billion transacted over the past five quarters nationally, 34.6 percent was driven by international buyers. In Houston and Seattle, every office deal transacted during this time period had a foreign buyer, while in Washington, D.C., Boston and New York, offshore capital led more than 50 percent of office purchases.

On the Pittsburgh Skyline, foreign capital investment has not had significant impact over the last few years. Domestic investment activity has been active, however. Top investments include development at the new U.S. Steel Headquarters, Tower Two-Sixty and the Tower at PNC Plaza.

“With the completion of Tower Two-Sixty, BNY Mellon’s planned consolidation and U.S. Steel’s relocation to a new headquarters in the Lower Hill District, we are forecasting an uptick in vacancy—projected above 10 percent by mid-2018,” said Batson. “This is good news for businesses that have felt suppressed by limited options over the last few years.”

Tenants and investors look to lower-class assets for customizable space

As investors begin to diversify beyond the Trophies for investment opportunities, a growing segment of tenants are also turning away from Skyline buildings in favor of non-core Class A and Class B buildings. The perception of an “address” has been replaced by the desire for highly customized office space, particularly among fast growing tech and other creative companies.

But, it’s not just tech companies looking for dynamic, flexible office space. The growing millennial workforce and their employers are increasingly drawn to architecturally significant Class B buildings located in dense neighborhoods packed with amenities.

“We’re seeing the national trend towards Class A and B buildings extend to the Pittsburgh market,” said Batson. “One key example is the Davis Companies’ purchase of the Union Trust building downtown.”

Batson added, “In March of last year, Davis Companies acquired the historic, Class A asset for $14 million. Since then, two technology companies have leased space—choosing restoration over newer spaces.”

Visit the full Pittsburgh Skyline for more.

About the Skyline Review
For the first time, investors and tenants alike can now access JLL’s Skyline Review via a digital platform. The fully interactive website will feature JLL’s proprietary market insights regarding office supply, demand, rents, leverage and investment in 47 markets across the United States and Canada, with the ability to compare and contrast individual markets or multiple markets. In addition, the site will offer videos and infographics. All information will also be available via mobile access. Users can also directly access information about Pittsburgh’s Skyline.

About JLL
JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual fee revenue of $4.7 billion and gross revenue of $5.4 billion, JLL has more than 230 corporate offices, operates in 80 countries and has a global workforce of approximately 58,000.  On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.4 billion square feet, or 316 million square meters, and completed $118 billion in sales, acquisitions and finance transactions in 2014. Its investment management business, LaSalle Investment Management, has $55.3 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.