Is the CBD in Pittsburgh a tenant’s market?
A ‘tenant’s market’ is a term used to describe a real estate market. In a tenant’s market, tenants hold the upper hand over landlords during negotiation. This can occur when vacancy rates rise in a certain area. When vacancies increase, landlords provide tenants with incentives that they might not normally offer. For example, Landlords use rent-free periods, reduced rental rates, increased flexibility, and contributions to tenant improvements to retain and attract tenants.
So, with the vacancy rate sitting at the highest it’s been since 2012, we have to ask, “Is Pittsburgh’s CBD becoming a Tenant’s market?” There are a host of factors that play into a question like this.
Technology companies desire to be near the universities and in the trendier fringe markets. More companies are choosing to downsize their space. This accommodates a remote, flexible workforce. In addition, landlords have increased their asking prices and rates are projected to continue to rise.
The East End is home to companies like Google, Facebook, and Duolingo. With its close proximity to CMU and the University of Pittsburgh, it’s a popular spot for companies to set up shop for recruiting purposes. Employees are able to take advantage of the live-work-play environment the surrounding neighborhoods offer.
With Oakland having a vacancy rate less than 2%, companies are exploring options in the Strip District and Lawrenceville. Technology companies are increasing their presence in these areas. They are drawn to the desirable rental rates in flex buildings that are not available in Oakland or the East End.
Companies looking to save money are also evaluating their leases and real estate portfolios. Whenever possible, they downsize their space. Open floor plans, shared spaces, and the ability to work remotely have allowed companies to reduce the size of space they need.
Recently, Found Advisors worked with a handful of clients looking to downsize. Law firms are a good example. In an age where everything is becoming digital, excessive storage and large libraries are becoming obsolete.
Pricing and parking also present issues when it comes to the Central Business District. The highest quoted rental rate in the CBD is $35/sf at the trophy building, One Oxford Centre. With the average asking rate just a bit lower, many companies are looking for space on the fringe or in the suburbs.
Leasing options outside the CDB are not just less expensive. They can also provide employees and staff with cheaper parking. Parking is more readily available outside of the CBD. And it is, often times, a fraction of the cost to park downtown.
Are we seeing a shift to a tenant’s market in Pittsburgh’s CBD? Tenant incentives, better rates and flexibility in the fringe markets and downsizing combine to make it a distinct possibility. The ball is in the tenant’s court when it comes to finding office space in the Golden Triangle.