Pittsburgh office vacancies reach record high, report says

Open office space in the Pittsburgh region is high and was still ticking upward during the first quarter of this year.

Total vacancies reached a record high of nearly 22% during the first three months of the year, according to a quarterly report by real estate firm Jones Lang LaSalle, which analyzed 272 leases signed in the Pittsburgh market.

Another firm, Newmark, put the vacancy rate a little higher at 23.4%, calling the beginning of 2023 a “difficult start to the year for the Pittsburgh office market.”

Companies are continuing to reevaluate just how much space they need as more firms go hybrid or remote; many tech firms have cut costs and laid off workers in recent months; and the cost of capital is high, according to quarterly reports by JLL, Newmark and the real estate firm CBRE, which has offices in Pittsburgh.

Still, high vacancies don’t mean new leases aren’t being signed. Many companies are seeking deals for smaller offices. But that also leaves a lot of empty space behind.

“The vast majority of companies we’re working with are deciding to optimize their footprint, which in reality means getting smaller and more efficient,” said Dan Adamski, senior managing director of Jones Lang LaSalle in Pittsburgh. “You’re seeing a lot of activity with companies moving because it’s easier to relocate into renovated or new space than it is to stay in place and construction take place around you.”

CBRE’s report found total leasing activity during the first quarter tallied over 832,000 square feet with over 33% being signed in the central business district alone. The firm says that’s the highest amount of leasing activity in that area since prior to the pandemic.

Meanwhile, average asking rates continue to rise, CBRE found. During the first quarter, average rates were over $26.00 per square foot. Class A inventory reached $31.00 “as demand for quality assets persists,” CBRE said.

More than half of the new deals signed during the quarter — about 53% — occurred in Class A or so-called Trophy buildings, showing a trend of tenants seeing workplaces with a lot of amenities, JLL’s report found.

Three years ago in the first three months of 2020, before covid-19 upended living and working patterns, total vacancies Downtown were 15.1%, JLL said.

Highmark Health is one example of a large company shrinking its corporate footprint. The Pittsburgh-based health care provider decided to put over 123,000 square feet of its space at Fifth Avenue Place on the market. Meanwhile, about $22 million in renovations there are nearing completion at the 31-story skyscraper, according to JLL, which is marketing the space.

Another move that put more space on the market came after RoadRunner Recycling inked a deal at TechMill 41 in Lawrenceville, resulting in a more than 50% reduction in footprint. The startup operated out of PPG Place and KL Gates Center. And Federal Home Loan Bank decided to move into a smaller space at One Oxford Centre, a 34% cut in space.

With plenty of vacancies, there’s little incentive for developers to build, so construction activity is down, JLL noted.

“Nobody is building out new space,” Adamski said. “The way it was pre-covid, it’s just not happening anywhere.

“The days of the cubicle farm are really over, because if you‘re going into the office, it’s to collaborate,” Adamski said. “You’ve got to almost entice some employees that get out of their homes, get dressed, commute into town and pay for parking. One way to do that is with an office that really encourages social interaction and makes people excited to go in.”