Introduction: Pittsburgh’s Downtown office market has taken multiple hits over the past few years as vacancies have lowered the value of buildings. The most recent tower to have its value lowered by appeal is One Oxford Centre, for the third time in six years. This follows Fifth Avenue Place and Penn Avenue Place which had values lowered in December.
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In all, it has been estimated that the value of Pittsburgh’s Downtown office market has dropped by over a half-a-billion dollars over the last several years. The lowered values are severely impacting the property tax revenue for taxing bodies, not only for the future but also for past years as building owners seek rebates for overpayments.
But how does the Pittsburgh market compare to other markets?
All data come from real estate research firm Jones Lang LaSalle (JLL).
Total vacancy rates
The total 2024 fourth quarter vacancy rate for all classes of buildings in Pittsburgh’s Downtown area, otherwise known as the central business district (CBD), came in at 21.8 percent, which represents an increase of 2.3 percentage points over the third quarter and 4.9 percentage points higher than the pre-pandemic fourth quarter of 2019.
To add some perspective, this study will look at ten other CBDs from around the country in the following cities: Charlotte; Cincinnati; Cleveland; Columbus; Dallas; Denver; Los Angeles; Nashville; Philadelphia and Raleigh-Durham. The average CBD vacancy rate for these cities, including Pittsburgh, for all classes of space was 24.4 percent, with a range from 16.7 percent (Cincinnati) to 34.4 percent (Denver). Pittsburgh’s vacancy rate is seventh highest and lower than that of Nashville (25.9), Los Angeles (31.8), Dallas (33.5) and Denver.
For class A, or premium space, Pittsburgh’s CBD vacancy rate ticked up from 17.4 percent in the third quarter to 19.6 percent in the fourth. It was slightly more than four percentage points higher than it was in 2019’s fourth quarter (15.9 percent). The average for this sample is 23.0 percent, with a range from 14.9 percent (Cleveland) to 33.5 percent (Dallas). Pittsburgh’s rate ranks third lowest just above Charlotte (17.1 percent), tied with Cincinnati and below Philadelphia (19.9 percent).
Total net absorption
Net absorption measures the amount of space that becomes leased, positive absorption, against the amount that becomes unleased, negative absorption or vacant. In 2024’s fourth quarter, the total net absorption for Pittsburgh’s CBD came in at a negative 142,437 square feet, implying that more space became vacant than leased.
For the entire year, the total net absorption was a negative 172,119 square feet. In this sample of cities, only Columbus and Cleveland had positive net absorption at 141,914 and 195,089 square feet, respectively. The average was a negative 299,530 square feet. Los Angeles’ CBD had the highest amount with over 1 million square feet becoming vacant. Pittsburgh had the fifth-best net absorption amount, just below Charlotte (-63,876 square feet) and better than Nashville (-173,513 square feet).
For class A space, the Pittsburgh CBD had a positive net absorption of 24,673 square feet in the fourth quarter and a yearly amount of plus 40,941 square feet. The implication is that more class A space went from vacant to leased, lending credence to the theory that firms were looking for space with better amenities to draw employees back to the office. For class B and lower, the net absorption amount was a negative 213,060 square feet for the year.
In this sample of cities, Pittsburgh is only one of four cities with CBDs having positive class A net absorption along with Columbus (140,322 square feet), Cleveland (192,630 square feet) and Charlotte (463,801 square feet). The average for this sample is a net negative 79,652 square feet becoming unleased. Once again, Los Angeles had the worst showing at a negative 657,572 square feet.
Total inventory
The pandemic changed workplaces perhaps forever with remote work. This left higher office vacancy rates in its wake. The reaction is to push the conversion of office space to residential—once commercial space has been removed from inventory, it will lower vacancy rates. Policy Brief, Vol. 24, No. 35, showed how difficult, and expensive, this will be. Some cities, including Pittsburgh, have already undertaken some conversions. Has this concept influenced total office inventory?
In Pittsburgh’s CBD, 2024’s fourth quarter total inventory of office space was 21.9 million square feet of which 15.9 million square feet was class A space while 6 million square feet was of lower-class space. That includes the new FNB tower (469,452 square feet, completed in the fourth quarter). In the following table, the total inventory in Pittsburgh’s CBD in the fourth quarter of 2024 is compared to the inventory in the first quarter of 2021 and to those of eight other CBDs in this sample (2021 data not available for Cleveland and Philadelphia).
| Total Inventory (in square feet) | |||
| City CBD | 2024 4th quarter | 2021 1st quarter | Difference |
| Denver | 39,667,567 | 36,612,024 | 3,055,543 |
| Los Angeles | 31,075,699 | 31,067,596 | 8,103 |
| Charlotte | 30,987,021 | 24,681,171 | 6,305,850 |
| Dallas | 26,214,352 | 26,968,411 | -754,059 |
| Pittsburgh | 21,941,202 | 18,972,607 | 2,968,595 |
| Nashville | 14,947,830 | 12,327,939 | 2,619,891 |
| Cincinnati | 14,346,754 | 11,273,157 | 3,073,597 |
| Columbus | 13,169,543 | 10,302,933 | 2,866,610 |
| Raleigh-Durham | 9,731,406 | 8,368,529 | 1,362,877 |
Only Dallas had a reduction in total inventory (-754,059), with much of that occurring to its class A space (-1,076,137), while it added to its class B and lower space (322,078). No other city in this sample reduced its inventory of CBD class A space from the first quarter of 2021 through the fourth quarter of 2024. In fact, Pittsburgh’s CBD’s class A inventory increased by 2.4 million square feet over the time period and another 542,157 square feet in class B and lower space was added.
In fact, it has been noted in the 2024 Brief, and in JLL publications, that the most likely candidates for conversion of office to residential are in older class B and lower buildings due to their reliance on natural light instead of fluorescent lighting. Only Nashville, in this sample, had reductions to class B and lower office space (-91,675 square feet) in the CBD.
Conclusions
The high vacancy rates resulting from the work-from-home culture are hanging on. But there are signs that there could be an improvement soon as more firms are requiring employees to come back to work on a more regular basis. JLL research notes that in the fourth quarter of 2024, 21 percent of Fortune 100 firms nationwide require five days in the office while another 74 percent now require some in-office work with an average of 3.4 days per week. Only 1 percent allowed employees to be home full-time. In the first quarter of 2022, it was reversed—only 2 percent of Fortune 100 firms were full office with another 48 percent being hybrid and 30 percent being fully remote.
This could lead to a decline in vacancy rates as firms begin to welcome employees back to the office and thus requiring larger spaces.
Furthermore, the office-to-residential conversion movement may take some lower-class space out of inventory. But it should be done on the developers’ dime. Taxpayers have no business subsidizing private developers. As we wrote about recently, the Downtown conversion project touted by the governor and containing taxpayer money for some office-to-residential conversion should be a non-starter.
The conversion process is going to be much more complicated and expensive. Since the developers are reaping the rewards, they should shoulder the cost.
