Why So Many Pittsburgh Tech Companies Are Buying New Offices

Why does Pittsburgh tech want to go back to the office?

A new report from JLL Pittsburgh examines the trends behind a series of recent expansions and office openings across the city, particularly in the tech industry. A number of top tech companies have chosen to more than double their physical footprint in Pittsburgh or open new locations here, from East Liberty to Bakery Square to Hazelwood Green and the North Side. This has led to an increase in new rental activity, but JLL has found that the numbers still lag behind pre-pandemic levels.

In the first quarter of this year, the sublease availability rate was at an all-time high for Pittsburgh, hitting 3.9% even after many of these new office expansions were announced. Overall, the city has only had one quarter with positive uptake — a situation in which more retail space is leased than is available — since the pandemic began, although the JLL report did not note which quarter it was.

None of this is a surprise.

There have been countless reports since the start of the pandemic of dwindling office space rentals and how work habits are permanently changing because of it. But it’s one of the few examples of Pittsburgh-specific statistics, and paints an intriguing picture in the context of surprisingly high rent rates in some areas of the city.

By a November 2021 CBRE report, from the second quarter of 2019 to the second quarter of 2021, office rent in the Oakland and East End of Pittsburgh area increased 34.6%, the highest rate of increase over this period in all the countries. Yet the average asking rent for offices in this area is $36.09 per square foot, which is significantly cheaper than the same metric for major tech hubs like Silicon Valley and Boston, which sell for rents per square foot of $113.28 and $89.65, respectively.

“There’s no doubt that Pittsburgh’s tech sector is leading the way in the back-to-office movement,” JLL vice-president Jackie Bezek said in a statement. “The flight to quality plays a huge role in the market, and the tech industry realizes that now is the time to act on these offerings and secure some of the most unique and well-appointed spaces in the most most popular and most promising. Recent examples include Duolingo’s expanded the 39,000 square foot office in Liberty East, from google three-storey expansion in Bakery Square and Dawn 100,000 square foot corporate headquarters at 1600 Smallman [in the Strip District].”

Others include new local engineering offices for DoorDash and Leaf through, Gecko Robotics‘ expansion to Nova Square and a new space for 3M technologists at Rockwell Park at Pointe Breeze. Local academic institutions such as Carnegie Mellon University and the University of Pittsburgh both announced new research and development spaces focused on innovation in technology and life sciences.

One thing all of this has in common? The buildings are new.

JLL found that 70% of new leases signed in Pittsburgh since 2018 were built or renovated in the past 10 years. This is largely due to increased tenant demand for amenities such as lounging spaces, healthy food services, and outdoor spaces. Again, this isn’t surprising given the flexibility many employees have come to know from working from home, but the financial effects behind these trends are beginning to emerge. The report noted that nationwide, the pandemic-induced flight to high-quality office space exceeded 51 million square feet, resulting in a 12% performance gap between serviced and amenity properties. .

In Pittsburgh, this has led to record concessions for office buildings. In other words, more than ever, building owners are offering advantages or discounts to tenants in order to close more transactions. In 2021, the average rent reduction period in Pittsburgh was about 12 months, while the average Tenant Improvement Allowance made available by building owners was over $90 per square foot.

For better or worse, all of these factors together are prompting Pittsburgh tech companies to return to the office. And given the number of people working in industries that greatly benefit from or even require in-person work — robotics and advanced manufacturing, for example — there’s a good chance that more lucrative leases will come in the future. Steel City.

Sophie Burkholder is a 2021-2022 corps member of Report for America, an initiative of The Groundtruth Project that pairs young journalists with local newsrooms. This position is supported by Heinz endowments. -30-

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