Pittsburgh Industrial Real Estate Market Reports | Avison Young US - Pittsburgh
Pittsburgh industrial market report
The Pittsburgh industrial market had a strong showing in the first quarter of 2023. Positive absorption was high, the leasing volume picked up, and vacancy continued to fall. However, rents remained flat and investment sales slowed.
Demand for space remained high as roughly 556,171 sf of positive absorption was registered and 2.3 msf of space was under construction. The pace of development slowed slightly, but with so much older product on the market, the need for quality space still exists. Long lead times were still a nagging issue for developers, but construction pricing seems to be levelling out.
Leasing activity was plentiful, with 905,654 sf getting claimed by tenants. It’s an impressive total considering that rents are elevated, and landlords aren’t typically offering many concessions. Three-to-five-year lease terms are still typical, but some tenants are showing some hesitancy when it comes to terms. Some third-party logistics providers, one of the more active tenant industries, opted for one-to-two-year leases over concerns of a potential recession and a desire to not overcommit.
Sales hit their lowest quarterly volume since the first quarter of 2021, but some brokers predict that more companies will opt to buy properties in lieu of renting. When faced with historically high rents, 2% annual escalations, and no pass-through protection, more tenants may jump at the chance to build equity and have full control over their properties.
Lastly, smaller properties are progressively leasing up faster than larger ones. The median number of months to rent for properties under 50 ksf decreased 41.8% in the last two years, while it increased 14.5% for properties over 50 ksf during that same period. A similar trend has appeared in other markets including Kansas City and Indianapolis, signaling that there is an increasing need for smaller industrial spaces.
Leasing volume climbed
The size of all lease transactions signed totaled 905,654 sf—the highest since Q2 2021. Overall, it’s a sign that the leasing volume has stabilized back to a more typical pace. Over the last four quarters, the Pittsburgh market averaged 12 deals and a total of 566,449 sf per quarter. From 2017-19, the quarterly averages were 11 deals and 565,623 sf.
Positive absorption continued
The 556,171 sf of positive absorption in the first quarter shows that Pittsburgh’s demand for industrial space is still going strong. While the market’s absorption levels can be sporadic at times (six of the last 13 quarters have registered negative absorption), the last 13 quarters have netted 4.2 msf in positive absorption. This is good news on the development front, as 2.3 msf of space was under construction last quarter.
Small properties, fast leasing
Unsurprisingly, industrial properties under 50 ksf (small) have consistently leased up faster than properties over 50 ksf (large). The median number of months to rent is currently at 4.6 for small properties and 15.8 for large ones—a difference of 11.2 months. However, the gap between those groups has been growing since 2021 and is at its highest since 2016. In the last two years, the median months to rent decreased 41.8% for small properties and increased 14.5% for large ones. A similar trend has appeared in other markets including Kansas City and Indianapolis, signaling that there is an increasing need for smaller industrial spaces.
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