Overall the Pittsburgh Industrial Real Estate Market continues to remain healthy with vacancy hovering around 5.6% and a minor decrease in asking rents over all of the sub-markets.According to CoStar” lease volume in the fourth quarter of 2023 fell to the lowest level in more than a decade. Just 442,000 SF of space was leased in 23Q4, which is 64% below the average fourth-quarter total in the five years prior to the pandemic. In Q3 2024, the industrial real estate market in Pittsburgh experienced several notable trends.
Calgary’s multi-family market has demonstrated strong long-term investment stability. This asset type has a ten-year average of more than $295 million in annual investment from 2013 through 2023 and 2024 is on-track to increase that metric.
Overall availability, as well as the vacant component, decreased in both the suburban and Beltline markets through the third quarter of 2024. Each market saw occupancy rise by approximately half a percent as each market posted notable positive absorption numbers; 147,000 square feet in the suburban markets and approximately 51,000 square feet in the Beltline.
The recovery of Calgary’s Downtown office market continued through the third quarter of 2024. Overall availability – and particularly the vacant component – of Downtown office space posted another quarter-over-quarter decrease. Substantial and ongoing demand for A and B class space continued to drive vacancy down in these categories and within these classes, we observed that the mid-sized range of options – those measuring 6,000 – 10,000 square feet – continued to diminish. This is especially noticeable in available sublease inventory.
Pittsburgh’s Central Business District (the “CBD”) is the largest office submarket in the Pittsburgh MSA. The CBD boasts more than 27.6M SF, which represents nearly 32% of total market inventory. Since having 500,000+ SF of office space hit the market in a single quarter a year ago (Q2 ’23), the total aggregate net absorption in the CBD in the past year was -260,446 SF; this indicates a pick-up in activity, although negative net absorption continues. Simultaneously, vacancy in Q2 ‘24 in the CBD is the highest its been (15.1%) since Q2 ‘20 and is expected to continue rising despite increasing leasing velocity by more than 10% per quarter since Q3 ’23.
"After two years of record commercial real estate investment in Edmonton, investors slowed their collective pace to let some froth come off the market. All indicators – population growth, low rental vacancy and expected BOC interest rate reductions -point toward a positive balance of 2024." -- David Wallach, CCIM, Owner/Broker of Barclay Street Real Estate.
Since the late 2010s and especially since mid-2020, ownership of commercial condo units has increased significantly in the Calgary market.Several formats – office, industrial and retail/ medical are available and can be found in a variety of options from units in small, multi-tenant buildings to business parks – all of which provide distinct advantages such as fixed and clear costs, complete control over design within the premises, and notably, tax benefits not available to leasing tenants.
"Confidence in Calgary’s future and plentiful opportunities to participate in future growth, coupled with the Bank of Canada interest rate reductions, created near-record demand for commercial assets at mid-year." -- David Wallach, CCIM, Owner/Broker of Barclay Street Real Estate.
The recovery of Calgary’s Downtown office market held strong during the second quarter of 2024. Overall availability – and particularly the vacant component – of Downtown office space posted another quarter-over-quarter decrease as we closed the first half of 2024. Just under 208,000 square feet of headlease space was taken through the second quarter, bringing the vacancy rate down even further. We also saw an uptick in new space marketed for sublease, sub-sublease and/or office share, which caused the overall availability rate for the Downtown to increase slightly.
Overall availability – and particularly the vacant component – of Calgary’s suburban office market was remarkably stable during the second quarter of 2024. The availability rate increased just slightly on approximately 21,000 square feet of negative absorption, which was due in large part to some larger spaces being marketed for sublease.
While demand slowed in Q4 2023, there are numerous signs that demand has increased through Q2 2024. Demand has slowed due to many factors that would include the continuation of high interest rates, a slow down in the trend of consumer spending, and consumers choosing to spend more of their disposable income on experiences such as vacations instead of purchasing “hard goods”.
While leasing volume accelerated in the first quarter of 2024, it remains muted relative to pre-pandemic levels. Just over 315,000 SF of space was leased over the past 12 months, which is well below the annual average in the five years leading up to the pandemic. As tenants continue to relocate and downsize, net absorption remains in the red over the near term, even in what is considered one of Pittsburgh’s most active submarkets pre-pandemic. Although vacancy rises at a gradual pace, there are no projects under construction in the Greater Downtown submarket which will provide for a hedge against dramatic increases in vacancy for the foreseeable future.
Despite noticeable cooling at the national level, Pittsburgh’s industrial market is holding up well and looking strong in the second quarter of 2024. Though absorption levels remain positive, vacancies are rising across the country as tenants reduce their footprint in the nation’s largest shipping nodes in response to a variety of economic pressures. Nationally, the average industrial vacancy rate is close to 6.3%, representing a 2% climb YOY. With several hundred million SF of space underway, this figure will likely continue to climb as the year progresses.
Though Pittsburgh’s Industrial real estate market remained stable throughout 2023, there are indicators that 2024 could bring some slight softening in vacancies, rents, and investment levels. While a cooling at the national level will impact demand in Pittsburgh, its effects are unlikely to be significant. Because Pittsburgh is not a distribution hub, construction has always been constrained and there is little risk of over-saturation. The market’s net absorption of industrial space was a robust 1.7 million SF in 2023, and local vacancies hovered around 5.5% throughout the entirety of the year.
Despite the ongoing softening the industrial market is experiencing at both the national and local levels, there are few reasons for pessimism regarding the long-term health of the sector. Numerous sources of data show leasing velocity slowing and vacancies climbing across the country, but in many ways this cooling represents a return to normalcy after years of pandemic related upheaval.
Fourth quarter 2023 closed with a direct vacancy rate of 3.73%, an overall vacancy rate of 4.05%, and an average asking direct rental rate reported at $7.75 per sq. ft. NNN. In December, the Michigan unemployment rate was recorded at 4.3%, identical compared to this time last year. The US job market continues to remain resilient despite an uncertain economy and elevated interest rates. In October, employers posted 8.9 million jobs tumbling to the lowest level since March 2021, while in December openings slightly increased with employers posting 9 million jobs, compared to 8.8 million in November. Recent data indicates a gradual movement towards a balanced pre-pandemic job market with hiring remaining steady and limited number of layoffs. University of Michigan economists are projecting a full recovery of jobs for Michigan by early 2024, followed by two years of growth and a decline in terms of inflation. US consumer inflation eased slightly in November, while consumer confidence to some degree increased during December. The Michigan economy holds steady despite facing several challenges throughout the year including an automotive strike, supply chain shortages, and elevated interest rates bearing an impact on loans and US home sales. The Federal Reserve closed out 2023 with the decision to keep the key interest rate unchanged since the last increase of 0.25% in July and appear to be confident in a “soft landing” of the economy in 2024.
Fourth quarter 2023 closed with a direct vacancy rate of 21.54%, an overall vacancy rate of 24.22%, and an average asking direct rental rate reported at $19.02 per sq. ft. In December, the Michigan unemployment rate was recorded at 4.3%, identical compared to this time last year. The US job market continues to remain resilient despite an uncertain economy and elevated interest rates. In October, employers posted 8.9 million jobs tumbling to the lowest level since March 2021, while in December openings slightly increased with employers posting 9 million jobs, compared to 8.8 million in November. Recent data indicates a gradual movement towards a balanced pre-pandemic job market with hiring remaining steady and limited number of layoffs. University of Michigan economists are projecting a full recovery of jobs for Michigan by early 2024, followed by two years of growth and a decline in terms of inflation. US consumer inflation eased slightly in November, while consumer confidence to some degree increased during December. The Michigan economy holds steady despite facing several challenges throughout the year including an automotive strike, supply chain shortages, and elevated interest rates bearing an impact on loans and US home sales. The Federal Reserve closed out 2023 with the decision to keep the key interest rate unchanged since the last increase of 0.25% in July and appear to be confident in a “soft landing” of the economy in 2024.
MODERATE MARKET ACTIVITY AMID HIGH UNCERTAINTY: In Q3/23, Chicago’s CBD occupancy levels and gross asking rates remained relatively unchanged from the prior quarter. The office market’s direct vacancy rate was 19.8%, while the average gross asking rate held at $44 p.s.f. Absorption levels turned negative this quarter at -432,000 square feet, resulting in year-to-date absorption levels at -933,000 square feet.
This retail snapshot of Oklahoma City is a survey of over 300 retail spaces within the Downtown Business Improvement District. Areas included are Midtown, Automobile Alley, West Village, City Center, Deep Deuce and Bricktown. Food and beverage currently dominate downtown.
The retail market, both nationally and locally, appears to be nearing an inflection point that will see the market move from surprising growth to more moderate growth and activity. Since the start of the recovery, retail has gained back all it lost in sales and then some. Occupancy has increased and there has been a significant influx of new tenants. Per CoStar, national retail vacancy sits at 4.2 percent near its all-time low.
Bringing more business activity back to Portland’s urban core will be essential for maintaining the city’s rising apartment profile. With most COVID-19 era restrictions lifted in March, dining, shopping and experiential offerings should draw more residents back to the central part of the city.
On March 12th, 2022, Oregon lifted its statewide mask mandate, marking an end to almost all of the State’s COVID-19 era business restrictions. As a result, retail demand in Portland is finally stabilizing and is positioning itself for a rebound in 2022. Barring any major setbacks from emerging variants, Portland might be heading back to a sense of normalcy in 2022.
The negative impacts of the COVID-19 pandemic continued to be felt deeply in the Portland metro office market. Demand for office space has continued to drop as a large segment of the workforce has shifted to a remote work model. Despite the drop in demand, year-over-year rent growth has returned with gains of 2.6%, while the national office rent gains are around 0.9%.
The rise in popularity of e-commerce and delivery services has greatly bolstered Portland’s industrial market during the COVID era. As a result, distribution and last-mile facilities will remain highly desired in the near- to mid-term. In order to combat supply chain issues that are impacting global markets, companies may look to shore up their domestic shipping assets. Several recent leases over 100,000 SF may be indicative of this trend.
Portland’s industrial market was better positioned than other markets to navigate the COVID-19 pandemic. This is thanks to the growth of e-commerce and delivery services in the wake of the pandemic. While vacancy and rent growth have softened by mid-year 2021, they are still at healthy levels.