2020 Q3 Industrial Report

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Demand for industrial product continues to exceed supply and while net absorption is down, it is not stopping companies from choosing to locate operations in the region. Local universities, particularly the University of Pittsburgh and Carnegie Mellon, are the primary local drivers of demand, but it is also coming in from national and international corporations who are working to realign their logistics models to reduce risk and assure a more predictable supply chain. The demand is most frequently seen in the form of mid-size regional distribution centers, last mile delivery depots and the rapidly emerging Tech Flex product.

In response to demand, many older, obsolete properties are being converted to the aforementioned Tech Flex product by both local and regional developers. While this space has an office component, it is also able to provide high bay space with the infrastructure needed to support a variety of technology/biotech and value-added manufacturing businesses. These types of properties are growing in popularity, particularly in the Greater Downtown submarket. RE2 Robotics recently expanded from 20,000 SF to 30,000 SF in Lawrenceville, AKA Robotics Row. The former Sears outlet building on 51st Street is being converted into 260,000 SF of Tech Flex coined The Lattice in tribute to the sites heritage as a former Steel Mill and will target the robotics, AI and technology industries. Rumors abound that a single user is considering taking the entire site, further
confirmation that this area is the equivalent to “Main and Main” for the Tech Sector in Pittsburgh.

In the suburbs, the Parkway West and West Pittsburgh submarkets are hot spots for activity. The access to major highways and the availability of land makes these neighboring submarkets the path of least resistance when tenants are evaluating options in the region. Clinton Commerce Park continues to enjoy enormous success with Haemonetics Corp. committing to a 203,000 SF spec building and a nondisclosed group committing to a 400,000 SF build to suit. This leaves only one lot remaining in Phase 2 that can accommodate a +/- 70,000 SF building.

New construction is still needed, with no sign of slowing in sight. The third quarter saw a couple construction deliveries, but this is not nearly enough to keep up with the growing demand. In Washington County, 165,000 SF of speculative distribution space was completed at 55 Hickory Street and in Beaver County, 105,000 SF of speculative warehouse space was built at Westgate Commerce Center.

There are several notable projects under construction. The highly anticipated Amazon distribution center is expected to be completed in the next quarter. This 1,300,000 SF facility in the Parkway West is one of the largest warehouse/distribution centers in the region and the largest to be built since 1909 when the 1,000,077 SF property at 2301 Duss Avenue was built in Beaver County. Amazon is also under construction with the developer, SunCap, on 125,000 SF along McClaren Road and reportedly searching for additional space along the Parkway West corridor. In Washington County, SunCap is constructing a 250,000 SF building for Komatsu Mining in the Alta Vista Industrial Park in Charleroi. In Beaver County, a second 105,000 SF speculative warehouse is under construction at Westgate Commerce Center which will be positioned well when the long awaited
demand arrives ahead of the Cracker Plant opening.

On a national basis, the industrial sector is vigorously healthy. Big box distribution centers are opening at a record pace and warehouse employment is at an all-time high. The nation’s reliance on e-commerce, which has been greatly accelerated by the pandemic, has strengthened the logistics and supply chain industries, leading to an expansion for many retailers and their associated 3PL’s. As of the end of the first half of 2020, big box distribution centers saw a positive net absorption of 79.8 million SF. This is a 51% increase year-over-year. Rental rates are climbing despite a relatively flat vacancy rate. Large online retailers, such as Amazon, are key drivers of this demand. In the first half of 2020, Amazon transacted or expanded by 26.9 million SF. This is more than 2018 and 2019 combined. Third party logistics providers are the largest occupiers of distribution space with 23% of the market.

While the region is seeing negative absorption, this is mostly pandemic-related and is not expected to last for an extended period. Rental rates should continue to rise, and vacancy rates should peak and then decline. The white-hot industrial market of Pittsburgh is not expected to slow for the foreseeable future. Though land development costs are high in the region, the demand for space is incentivizing developers to break ground and move dirt to accommodate the growing need.


2020 Q3 Industrial Report

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