Forecasting the Future of Pittsburgh’s Commercial Real Estate

The state of the commercial real estate office market amidst the pandemic and post-pandemic is one of the most talked-about business topics in Pittsburgh and across major Pennsylvania cities.

Pittsburgh was found to have a record high in office-building vacancy at 21.8%, meaning a little more than one-fifth of all buildings sit vacant today, according to the Q1 Office Insight research report from JLL Pittsburgh.  

This data has far-reaching effects across local and state economics, and prompts questions like:

• What is the state of Pittsburgh’s commercial real estate market?
• How did the pandemic and shifting remote-work strategies affect office vacancies in some of Pittsburgh’s most iconic office buildings that make up its Central Business District?
• How does Pennsylvania’s commercial real estate economy compare with that of similar cities, and what is the forecast?
• What is the future for major Pennsylvania cities’ downtown economies and commercial real estate?

We at JLL strive to answer these questions by collecting research, analyzing data, and leveraging our expertise and networks across Pennsylvania’s commercial real estate industries and sectors.

Pre-Pandemic Pittsburgh Commercial Real Estate Environment

To understand today’s downtown office real estate market in Pittsburgh, it’s helpful to understand how it looked pre-pandemic.

Our research shows that downtown Pittsburgh had one of the healthiest office markets in the country in 2014. In that year, downtown’s total vacancy was just 7.9%, and corporations seeking to enter the market or expand had few premium, or “Class A,” building options to choose from.

Asking rents were elevated, and concessions like free rent and tenant-improvement allowances did not exist as they do in today’s post-pandemic leasing environment, where record-high vacancies persist. Downtown’s residential inventory had also continued to grow, as “Class B” properties were being converted into mixed-use (e.g., apartments, condominiums, retail, etc.) or into a higher “class” of properties, further tightening premium office supply.

During this time, it was not just downtown that was thriving but also surrounding Pittsburgh neighborhoods: the Fringe, East End, and suburbs were faring well with the growth in the city’s technology and energy sectors, which spurred new office development in these areas.

The market was active, vacancies were low, and development into surrounding Pittsburgh neighborhoods was robust. It was a halcyon period in Pittsburgh commercial real estate.

Pittsburgh’s Pandemic Commercial Real Estate Environment

In Q1 2020, the first quarter after the official start of the pandemic, Pittsburgh’s commercial real estate vacancy was 15.1%. This stood as a record high until Q1 2023 surpassed that mark at 21.8%. By 2023, vacancies had more than doubled from 2014.

One of the biggest trends driving this increased vacancy rate is “flight to quality.” The term connotes a pandemic trend where most office deals feature a company seeking higher-quality office spaces with less overall square footage. In the JLL Q1 Office Insight Report, more than half of new office deals in Q1 2023 have been “Class A” or “Trophy” rated buildings.

Recently, two companies exemplified the flight-to-quality trend: St. Louis-based Emerson, a manufacturer of electric motors and fans, confirmed the leasing of 142,000 square feet, a 47% reduction in footprint compared to their prior location. And the Pittsburgh branch of the Federal Home Loan Bank announced a lease of more than 57,000 square feet at One Oxford Centre, a 34% reduction compared to its prior office space.

With reduced workforces and hybrid work strategies more prevalent, companies understand that they do not need the same amount of square footage as they did in 2014. They are opting for less office space to be more efficient and to foster an intentional work culture that prioritizes efficiency, collaboration, and flexibility.

Another component of flight to quality is the prioritization of amenity-rich office buildings. Such amenities can include proximity to major transportation hubs, parking spaces, state-of-the-art fitness centers, popular retail hospitality options within or near the building, access to running or biking trails, outdoor patio space, ample natural lighting, and so on. Less office square footage with more work-live-play options for workers is the predominant trend for companies seeking new office space.

How Pittsburgh Compares to Other Major U.S. Cities

The above chart portrays 12 U.S. cities with total office vacancy rates comparable with those of Pittsburgh. Pittsburgh’s vacancy rates are slightly above the average total vacancy rate for the group (20.6%), and nearly tied with those of Columbus, St. Louis, and Cincinnati. Philadelphia has one of the lowest vacancy rates among the group, at 18.7%.

The chart shows that Pennsylvania is not alone in being affected by these trends: these peer cities face similar headwinds in the hybrid work era.

The Future of Pittsburgh Offices and Work

Despite news of tenants shedding excess space and slower deal volume since the start of the pandemic, workers are returning to work and to city centers to shop, dine, and to experience cultural events and attractions.

On May 5, the World Health Organization announced that the COVID-19 pandemic was officially over, offering a clear signal to companies and workplaces to settle on a long-term workplace strategy. Recent worker population data shows a return-to-office trend emerging, and we can expect the flight-to-quality trend in amenity-rich, high-quality office buildings to continue.

Recent worker population data from Placer.ai for Philadelphia’s West Market Street Office District showed that the worker population was 47% of pre-pandemic levels. Downtown Pittsburgh’s worker population data estimates were slightly greater, at 54% of pre-pandemic levels as of Q1 2023. These are positive signs.

Although the pandemic has posed challenges, signs of evolution, renewal, and growth are evident across Pittsburgh and Pennsylvania’s commercial real estate sectors. While progress may be incremental, JLL is focused on helping shape the future of Pittsburgh and Pennsylvania.