PITTSBURGH'S APARTMENT MARKET seems to have as many things going for it as it has bridges—which is a lot. The fundamentals in Steel City are outperforming most metro areas across the nation, thanks to a confluence of factors.
For one, an improving job market has helped to fuel the region's first population increase in nearly 20 years, while limited new construction has also driven up occupancy rates and encouraged rent growth.
Average apartment rents have increased 3 percent since the beginning of the year, and the region's vacancy rate of 4.2 percent is among the lowest in the nation, according to Boston-based CBRE Econometric Advisors. In fact, the region's projected annual rent growth of 0.9 percent this year places it among the top 79 U.S. markets tracked by New York-based market research firm Reis.
The city center continues to be the region's strongest submarket, with an astounding 97.8 percent occupancy rate and average rents of $1,171, according to Carrollton, Texas-based M/PF Research. Following the city, the strongest submarkets for rental occupancy are the East (Monroeville), the West corridor, the South Hills, and the North.
Rated “America's Most Livable City” this year by both Forbes magazine and Places Rated Almanac, Pittsburgh continues to gather momentum coming out of the recession. Population and employment growth, coupled with limited new supply, will help keep the city's apartment market among the nation's best.
A Transformed Economy
The unemployment rate in Pittsburgh was 8.5 percent as of July, 100 basis points lower than the national average of 9.5 percent. This relatively mild unemployment rate can be partly contributed to the region's diversified economy, which emphasizes technology, health care, and education.
UPMC, an $8 billion integrated global health enterprise headquartered in Pittsburgh, is the largest employer in western Pennsylvania, with nearly 50,000 employees.
Energy technology is another emerging market in western Pennsylvania. Electronics giant Westinghouse signed a $5.4 billion contract to build four nuclear power plants in China, and as a result, significantly expanded its local research facilities.
Marcellus Shale development is also helping the Pittsburgh region establish itself in energy innovation. Marcellus Shale—which sprawls across more than half of Pennsylvania and underlies Pittsburgh—is the world's largest unconventional natural gas reserve and could add $13.5 billion to Pennsylvania's economy and create more than 174,000 new jobs in a single year, according to a Pennsylvania State University study.
With more job seekers moving into the area than moving out, Pittsburgh is entering a new era of growth. From 2008 to 2009, Allegheny County saw its first population increase in nearly 20 years, according to recent U.S. Census Bureau estimates. Analysts are predicting a continued incremental population increase in Pittsburgh over the next 20 years, gaining nearly 200,000 residents by 2030, according to Amherst, Mass.- based Regional Economic Models.
Build It, Buy It, Sell It
Apartment investors are taking note of Pittsburgh's solid and steady fundamentals.
Out-of-town investors remain attracted to the market. The 316-unit Waterford at Nevillewood in upscale Presto, Pa., was purchased by Rochester, N.Y.-based Morgan Communities in May and was only on the market for about 30 days. For Morgan, it was the second major acquisition in Pittsburgh in the past year, having purchased a 232-unit development on the city's North Side in December 2009.
Additionally, the sale of Cloverleaf Village, a 148-unit, 36-building gardenstyle community in Jefferson Hills, Pa., is expected to close at the end of August. It was purchased by a local investor.
A few new development projects are also under way. There are 305 units expected for delivery in Pittsburgh in 2010, and developers are expected to complete 379 units next year, according to Reis.
The former State Office Building in downtown Pittsburgh is being considered for 220 apartments. Pittsburgh-based Millcraft Industries purchased the 16-story building in March for $4.6 million.
Meanwhile, Pittsburgh-based Burns & Scalo Real Estate plans to renovate a sevenstory, 150,000-square-foot former Goodwill headquarters on the city's South Side into an 87-unit market-rate apartment building with 12,000 square feet of retail space on the first floor. Also on the South Side, the former Vo-Tech School is being converted into a 71-unit apartment complex. Pittsburghbased Gregory Development bought the 160,000-square-foot historic property in 2008 for $1.5 million.
Even if all of these projects are completed by the end of the year, multifamily construction will be down from last year, when a mere 437 units were completed (all in a single project, the Emerald Gardens redevelopment on the West End). No multifamily market-rate units were delivered in 2008.
And that strict supply situation—coupled with a dip that's minor compared to the rest of the country—has Pittsburgh poised to be a strong market heading into the recovery.