NORTHEAST SNAPSHOT, JANUARY/FEBRUARY 2011
PITTSBURGH RETAIL MARKET
Since it bottomed out in early to mid-2009, we have noticed slow and steady growth in the Pittsburgh retail market. Without a doubt we are at the start of a rebound as evidenced by lenders putting more on the table to finance solid projects and concepts. Retailers focused on intelligent growth will be able to take advantage of local financial offerings and government stimulus programs currently in place.
Markets like the CBD, Oakland, Shadyside, The North Shore and The East End, along with the northern, western, and southern suburban markets remain strong. The current vacancy rate for the CBD and Greater Downtown area is just above 4 percent, with less than 500,000 square feet available for lease. The suburban vacancy rate hovers around 6 percent with approximately 6.7 million square feet currently available. The Pittsburgh metro area has remained relatively stable with little variance in vacancy over the past 12 months.
In recent years, we have seen retailers such as Circuit City and Boscov’s vacate space in the Pittsburgh market, but their exits have opened opportunities for local and regional retailers to enter or expand in the area. For example, hhgregg is targeting former Circuit City locations for their ease of conversion. To date, the retailer has opened stores in the airport corridor, Monroeville and in Cranberry Township.
Other retailers expanding in Pittsburgh include Tilted Kilt, which is opening soon on The North Shore and is keeping an eye on suitable suburban locations; and Firehouse Subs, which has targeted Pittsburgh as one of its newest growth markets and is opening its first of 20 planned locations in Canonsburg in the second half of 2011.
Current retail rental rates vary extensively based on the market. For example, in the central business district, typical rental rates range from $15 to $20 NNN, but in redevelopment projects like Market Square, tenants are paying rates in the low $30s. The same holds true for the suburban markets. In submarkets to the east, tenants may pay single-digit rates for space, while those located in the high-demand markets and in new developments are paying high $20s to low $30s for space. Typically, suburban markets trend in the high teens to low $20s for rental rates with extras.
For investors with cash on hand, there are deals to be made. For financing-dependent investors with a solid business plan, there are signs that financial institutions are starting to lend again. Investors that bought properties, retrofitting them with the intent to flip them, are now guarding against a potential loss by holding on to the properties.
For the past 18 months, the majority of retail investment activity has been playing out with freestanding stores — particularly drugstores such as Walgreens and Rite Aid — being purchased as part of a portfolio of investment properties.
The most significant retail transaction that could have a major impact on the south submarkets is Simon Property Group’s acquisition of the former Boscov’s department store at South Hills Village Mall. A number of possible new tenants have been rumored for the space, including Target and Dick’s Sporting Goods, but no formal announcements have been made. The Route 19 South submarket, where the mall is located, is an under-served retail market that could benefit greatly from the addition of a major discount retailer or upscale department store.
On the development front, there are several significant projects underway.
Bakery Square is the redevelopment of the former Nabisco plant in Pittsburgh’s East End. This mixed-use development includes a Marriott Springhill Suites, approximately 216,000 square feet of office space and approximately 65,000 square feet of planned retail space. Google recently moved its local office to Bakery Square, joining divisions of the University of Pittsburgh Medical Center (UPMC) and retailers Anthropologie, Verizon FiOS and Urban Active Fitness.
South of Pittsburgh along the Interstate 79 corridor, EQA has begun construction on Newbury Market, a brownfield redevelopment that will include a residential community with adjacent retail, entertainment and office space. Newbury Market is situated on an 80-acre former chemical plant and is visible from Interstate 79 and accessible from Route 50. When complete, it will offer mom and pop retail, large and small national retail, kiosks, and office space. A companion housing development, Newbury Village, which will kick off the project, is already underway. The total anticipated cost of the Newbury redevelopment/construction is approximately $250 million.
North of the city, Adventure Development has broken ground on McCandless Crossing, a 1 million-square-foot mixed-use development. Approximately one-fifth of the total square footage will be allocated to retail space with a suburban downtown design. This project represents an assemblage of 130 acres on both sides of McKnight Road and is anticipated to comprise a town center, retail, and office space as well as hotel, entertainment, and residential space. It is located adjacent to the campus of La Roche College and UPMC Passavant Medical Center. Lowe’s Home Improvement and Fidelity Bank have already opened at the location.
Cranberry Township, located 20 miles north of Pittsburgh, is the hottest submarket in the region. Home to Westinghouse Nuclear Energy’s North American headquarters, Cranberry has seen tremendous growth in both population and commercial development within the past decade. There are two significant new projects taking shape in the Cranberry market in 2011. The first is Cranberry Promenade, a major mixed-use development by Warner Pacific Properties, which broke ground in January. The project includes retail, commercial space, entertainment and dining venues and is located just off Route 19 North. Construction of the first 19,000-square-foot building on the site is scheduled for completion in September and will house a grocery store.
The second project is Creative Real Estate Development Company’s The Village of Cranberry Woods. This project is adjacent to the Cranberry Woods Business Park where Westinghouse is located and will include more than 50 acres of retail, residential and professional space. Among its planned attractions are two hotels (a Hilton Garden Inn and Hilton Homewood Suites), five restaurants, a multi-screen movie theater, more than 230 residential units, 120,000-square feet of retail and 440,000 square feet of office space. The project will include an events plaza and playground in its common area.
All in all, the Pittsburgh retail market should continue to show determined momentum in growth and sustainable economic recovery in the coming year.
— JR Yocco, retail leasing manager with Pittsburgh-based Grant Street Associates Inc., a member of the Cushman & Wakefield Alliance
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