Known for its economic resilience and diversity, Pittsburgh was historically dominated by the steel industry, earning the nickname “Steel City.” However, the city has undergone a significant economic transformation in recent decades. The collapse of steel production in the 1980s inspired a shift toward sectors like healthcare, education and technology.
Pittsburgh is home to top-flight universities such as Carnegie Mellon and the University of Pittsburgh. They are fostering a vibrant tech and start-up scene, which is attracting companies such as Google and Uber. The presence of the University of Pittsburgh Medical Center, one of the largest health systems in the U.S., underlines the importance of the healthcare sector.
Tourism, finance and advanced manufacturing also play significant roles in the economies of both Pittsburgh and Pennsylvania.
Commercial real estate does, too.
According to “Economic Impacts of Commercial Real Estate, 2023 U.S. Edition,” published by the NAIOP Research Foundation, commercial real estate contributed $12.4 billion to the state’s economy in 2022. The industry also generated $4.6 billion in wages and salaries in Pennsylvania, and it created and supported 74,276 jobs.
Development: How are the market conditions for member companies in your area?
Snyder: Pittsburgh has always been a very stable market. While it has never been overbuilt, the office market in the central business district is seeing challenges as a result of impacts from the pandemic, including hybrid work. According to CBRE, year-to-date office space absorption is negative 435,000 square feet within the CBD, and the vacancy rate hit 17.5% in the second quarter. However, new leases are being signed in Class A buildings, which supports the supposition that firms may downsize but take higher-quality space when relocating. Industrial and multifamily are the most active asset types in terms of new deliveries, and the area is experiencing a substantial amount of new investment from out-of-town developers. Current market conditions have caused local NAIOP member companies to be more selective about what projects they are pursuing, but certain positive data such as demand for multifamily and industrial buildings have allowed development to remain active. In the second quarter, the industrial vacancy rate in the Pittsburgh market was 4.2%, 100 basis points lower than this time last year.
Development: What are the challenges you’re facing in either the business or regulatory climate in your area?
Snyder: Pittsburgh’s current challenges in the business climate are similar to other markets. New construction is difficult to finance considering the current costs of construction and debt, combined with rising cap rates driving down values. The regulatory environment needs a complete overhaul — we need to create a better working environment between government and private development. Certain governments still have NIMBY sentiments toward real estate development despite relying heavily on real estate taxes from either existing or new investments. As a chapter, we are striking a balance between standing up against increases in real estate taxes and predevelopment fees while supporting the needs of our local governments.
Development: What are the big opportunities in commercial real estate in your area right now?
Snyder: Currently, there are significant opportunities for multifamily development in both urban and suburban areas. While Pittsburgh is not considered a growth market in terms of population, we experienced a 2.7% year-over-year increase in jobs last year according to Yardi, which also found that the region’s multifamily market saw 6% rent growth in 2022. That outpaced the nation by 120 basis points. The combination of costs associated with home ownership due to the heavy increase in mortgage rates and the lack of single-family inventory could fuel demand for additional rental units in the area.
Development: What are some of your chapter’s legislative priorities?
Snyder: Our chapter’s top priorities include improving incentive programs for job-creating projects at the state level, as well as helping to create a more pro-business and pro-development atmosphere within the city of Pittsburgh. NAIOP Pittsburgh is acutely aware of the challenges Pennsylvania faces when it comes to attracting large-scale job-creating opportunities, especially when competing against other states that can offer more substantial economic incentives. We believe Pennsylvania should bolster its economic development tools to be more competitive in multi-market search opportunities. Pennsylvania needs to invest in competitive incentives and economic grant programs so our communities can receive long-term economic benefits like neighboring states such as Ohio. NAIOP Pittsburgh believes that the city needs to enact a YIMBY investment agenda that will combat current economic conditions and support the development community.
Development: Education is an important part of NAIOP’s mission. Have there been recent educational sessions specific to your chapter recently?
Snyder: We hold monthly meetings where a relevant topic is the focus of the session, and we invite experts to be panelists so members can learn more about the subject matter. Most recently, we held chapter meetings on topics including multifamily development, green building initiatives and capital markets. NAIOP Pittsburgh has a programs committee that thoughtfully selects the topics for each meeting throughout the year. The programs committee also selects the panelists and the moderator, who are all locally involved, highly experienced and experts in their fields. Chapter meetings help our members stay informed about market conditions and inform them about trends and opportunities within our industry.
Trey Barrineau is the managing editor of publications for NAIOP.