News Column

Techie Influx Gives Pittsburgh Rentals a Bump

September 18, 2013

Deborah M. Todd, Pittsburgh Post-Gazette

Sept. 18--As Pittsburgh's rise through the ranks of the nation's tech hubs continues, the local real estate market could be one of the biggest benefactors.

The region ranks 23rd in the nation as a "tech talent" market, 10th in the "knowledge pipeline" category and is the No. 1 contender in the office market category, as measured by office rents and the five-year rent outlook, according to a report released this month by Los Angeles-based real estate services and investment firm CBRE Group.

Meanwhile, Pittsburgh's office market rates have outpaced national averages throughout the year, according to a study by Seattle-based Colliers International.

That study shows that in the second quarter, average office rental rates in Pittsburgh were $18.63 per square foot, up 15 cents from the previous quarter and more than $4 cheaper than the national average of $23.23 per square foot. Overall, local office vacancy decreased one tenth of a percentage to 8 percent, compared to a 17 percent decrease nationally.

Jeffrey Ackerman, managing director and marketing leader of CBRE's Pittsburgh office, said the measurements reflect two things: that the city's growing tech talent sector will be seeking space to expand in coming years and that real estate developers will be sizing up the regional inventory of vacant properties to meet the demand.

"The reason Pittsburgh has a high ranking for the five-year office market rental outlook is because the supply of high-quality spaces is very tight and demand exceeds the pace of new spaces coming onto the market," said Mr. Ackerman.

Another factor affecting the seemingly stingy stock of office spaces is the fact that the city features few of what Mr. Ackerman calls "shovel-ready sites."

Cities such as San Jose, Calif., and Seattle, both of which were named as top five tech markets in the report, feature scores of wide, flat parcels of land that are prime spaces for office parks or multilevel buildings. In Pittsburgh, where working around the slope of a hillside is an expected part of development, as is working around legal obstacles that vary between municipalities, construction isn't always as simple as obtaining a building permit.

Despite the challenges, Mr. Ackerman said the wealth of tech talent coming from the region's universities combined with efforts to build up-and-coming neighborhoods into tech hubs will be a major attraction for developers in the next few years.

He said the city should expect to see more mixed-use and rehabilitated developments along the lines of Larimer's Bakery Square, which features Google's Pittsburgh headquarters and amateur prototyping and manufacturing space TechShop Pittsburgh.

William Generett, executive director of the Pittsburgh Central Keystone Innovation Zone, called the CBRE report very exciting news. Noting that a combination of tax incentives and initiative from tech entrepreneurs willing to put a little elbow grease into redeveloping run-down spaces has transformed areas such as East Liberty and the Lower Hill District into revitalized centers of commerce, he said the demand for space could only be positive for other underdeveloped areas.

"On one level, it's great for the region, but what excited me the most is to see how tech is spreading out to our neighborhoods, and that's the goal of our work."

Rabih Helou, co-founder of East Liberty co-working space The Beauty Shoppe, said another factor that may influence tech entrepreneurs to choose Pittsburgh over more established tech cities is that they may have an easier road financially when setting up shop here.

"On the West Coast, the last 10 years the cost of real estate -- whether it's commercial or otherwise -- has exploded, while Pittsburgh stayed the same," he said.

"Now the equation changes, especially when you consider [that] what happened in real estate the past 10 years during the Great Recession has crippled hiring at major corporations. Tech talent thinks, 'do I want to go to work for a major corporation or do I go to start my own thing?' "

And while Mr. Helou credits the addition of Google and the subsequent growth of Bakery Square for bringing an air of legitimacy to the Penn Avenue corridor, he said startups will most likely take the lead in redeveloping neighborhoods, one storefront at a time.

"Google legitimizes the corridor for some large businesses. But we have been doing our thing before Google got there, and what we have built here is the culture of innovation that brought them here in the first place," he said.

"I think Google came here because we were here first."

Deborah M. Todd: or 412-263-1652.


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Original headline: Rental market pushes Pittsburgh 'tech talent' rise

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Source: (c)2013 the Pittsburgh Post-Gazette

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