Pittsburgh Region's Economy On The Move

While the rest of the U.S. economy sagged in 2007, the Pittsburgh region’s economy experienced a very good year. From investments in new and existing developments to residential, commercial, and industrial real estate, our economy held to its robust health and set the preamble for solid growth ahead.

The numbers prove the point. According to a recent survey by the Allegheny Conference and the Pittsburgh Regional Alliance, investment in our economy surpassed expectations in 2007. Businesses invested $4 billion in commercial, office, and industrial developments. Two-billion dollars was spent on development, like constructing new buildings, and companies invested $2 billion when taking occupancy in new buildings. The survey reported economic development in the 10 counties of Allegheny, Armstrong, Beaver, Butler, Fayette, Greene, Indiana, Lawrence, Washington, and Westmoreland.

Roughly 80 percent of investments went for expansion and retention, indicating organic growth from within the region, and 20 percent was spent on attracting new companies here. “The information we gathered was not comprehensive, nor was the methodology scientific, but conducting this research was a first. Asking our economic development partners to gather and provide their input had never been done on a regional scale before,” said Dewitt M. Pert, President of the Pittsburgh Regional Alliance. “We wanted to show what’s happening positively in the region’s economy to the people here and to potential investors from outside the region.” He emphasized that going forward, the Pittsburgh Regional Alliance and the Allegheny Conference on Community Development plan to track the region’s economy annually.

What’s helped our local economy is that developers now have buildings and adjacent infrastructure like streets, waterlines, sewers, and such ready to go when companies outside the region come looking for places to locate. Companies planning to move here expect to be ready to go in six to eight months from agreement to move in. They don’t want to wait for permits to be in place and buildings to go up.

Progress like this supports the continued growth of the Pittsburgh region as a business-development destination of choice. “Last year was one of the strongest years for the Pittsburgh industrial market. Absorption was in excess of two million square feet and market-wide vacancy for competitive space dropped below eight percent for the first time,” said Lou Oliva, senior vice president at Grubb & Ellis in Pittsburgh, where he specializes in industrial real estate.

Pittsburgh’s central location is a value added for companies seeking to develop here. Pittsburgh lies within 500 miles of more than half of the U.S. population and less than 90 minutes flying time from 20 states and Canada. Top-ranked Pittsburgh International Airport, with four runways with available capacity and extensive air-cargo facilities with direct runway access represents another value-added feature of our region.

Pad-ready commercial real estate sites and business parks in the airport vicinity are ready to support a significant interest — anticipated by commercial real estate experts — in the airport corridor. “We anticipate that industrial users are going to shift their focus to the burgeoning developments in the Airport area (West) submarket owing to years of successful development and limited industrial site availability in the historically active Cranberry (Northwest), Allegheny Valley (Northeast), and Washington (Southwest) submarkets,” said Oliva.

PittsburghProspector.com, an initiative of the Pittsburgh Regional Alliance, helps investors fully explore specific properties. The site makes available a free and
comprehensive online database of commercial real estate properties. The website provides access to property listings and vital data that are easily organized into reports and can influence relocation or expansion decisions.

PittsburghProspector.com marked its first anniversary in January 2008, and reported nearly 400,000 national and international hits. Users can access a breadth of online real estate information and produce a variety of reports. “Informed leads generated from the web site facilitate discussions
about specific properties — parcels of land, office space and industrial space, such as distribution centers or manufacturing facilities—with real estate brokers,” said Peart.

PittsburghProspector.com offers details about catalogued properties and supplies viewers with workforce demographics, existing market synergy and competition, and interactive maps. Easy and on-demand access to this information saves busy commercial real estate professionals and investors time. The free, 24/7 real estate database access is available at www.pittsburghprospector.com.

Job Growth on the Upswing
Other areas in the United States lost jobs in 2007, but the Greater Pittsburgh Region added jobs — an upward trend that’s expected to continue beyond 2008.

Last year, jobs increased by 8,400, marking the best showing since 2000 and the strongest job-growth performance in seven years. The region added 5,200 jobs in December 2007 alone, outperforming original projections by a factor of six. Although the region recovered slowly from the last downturn in 2001/2002, employment has grown at a steady rate since then. And 2007 saw the largest percentage increase. Overall, 13,000 new jobs were created in the region and 11,000 jobs were retained.

Sixty-four companies announced plans to collectively add more than 4,400 jobs. The Bank of New York Mellon recently added 600 jobs and is expected to add 1,000 to 2,000 more. And Westinghouse anticipates adding 1,000 to 3,000 jobs at its facility in Cranberry Township. The largest share of job growth took place in headquarters employment. Growth in this sector rose nearly 11 percent, followed by construction, administrative and support services, and manufacturing, all of which outperformed the national average in their respective sectors. And even though jobs were down in financial services, this sector still outpaced the national average.

“The growth in headquarters employment shows that the Pittsburgh region is playing to its strength,” said James Futtrell, Vice President of Market Research and Analysis at the Allegheny Conference on Community Development. “Growth will come here through companies that serve economies external to the region.”

In 2007, companies based in the Pittsburgh region expanded globally. Acquisition of foreign companies by Pittsburgh corporations outpaced purchases of Pittsburgh companies by foreign corporations. In 2007, local companies made 14 foreign acquisitions totaling $11 billion, whereas foreign companies spent $5.3 billion to acquire 11 local companies.  Mylan led the list of such acquisitions with its $6.8 billion purchase of Merck’s generics business. PPG Industries purchased the SigmaKalon Group, a worldwide coatings producer based in Uithoorn, Netherlands for $3.2 billion. And U.S. Steel completed the acquisition of Stelco Inc., based in Ontario, Canada for $1.1 billion.

Additionally, Westinghouse increased contracts to build nuclear power plants in the United States and around the world in countries like China. And Respironics is now the global headquarters for a major, high-growth business unit of Philips, headquartered in the Netherlands and one of the largest companies in the world.

Some of the largest investments within the Pittsburgh region included $450 million by PITG Gaming, $200 million by Westinghouse, and $200 million by Meadows Racetrack and Casino. Moreover, exports from the Pittsburgh region have shown substantial increases. According to the latest U.S. Department of Commerce metropolitan area estimates, exports from the Pittsburgh region increased 20 percent to $8.3 billion in 2006, outpacing the national increase of just 8 percent. About a fourth of the region’s exports — more than $2-billion worth — went to Canada. In 2006, exports from our region to Belgium increased by 58 percent, making this major gateway into Europe the fastest growing major export destination for the Pittsburgh region. Our legacy industries – metals, chemicals, and coal – all registered above-average growth rates and accounted for nearly 60 percent of all exports.

Residential Housing and Commercial Real Estate Continued Strong
In the fourth quarter of 2007, the Pittsburgh housing market carved out a positive trend while the housing market in the rest of the country experienced a marked deflation. During the fourth quarter of 2007, prices in Pittsburgh’s housing market increased 4.1 percent over the fourth quarter of 2006 while prices in the national housing market dropped by nearly 6 percent, the largest fourth quarter drop on record.

This hefty performance pushed up the price of an existing home in the Pittsburgh market from $112,200 or 51 percent of the national average in the fourth quarter of 2006, to $116,900, or nearly 57 percent of the national average in the fourth quarter of 2007. What’s more, the foreclosure rate in our region dropped nearly 30 percent. Pittsburgh was one of only 14 markets in the top 100 that showed a decrease in the foreclosure rate, and the drop in our foreclosure rate was the fourth largest in the country.

In 2007, the commercial real estate market in the Pittsburgh region showed strong progress. Office leases or expansions by companies like UPMC, BNY Mellon, Dick Corporation, and Westinghouse cut the vacancy rate from 19 percent at the end of 2006 to nearly 17 percent. And the total, net office absorption of nearly 2 million square feet was the 12th highest absorption level in the United States.

The industrial market turned out in positive fashion in 2007 with 2.1 million feet of net absorption. This dropped the industrial vacancy rate from 8.7 percent to 7.7 percent, a record low according to Grubb & Ellis. This drop took place even with the completion of 915,000 square feet of new space. Grubb & Ellis reported major leases signed by American Beverage, Bay Valley Foods, Closet Maid and A.J. Silberman.

When you look closely at our 10-county Pittsburgh Region, you’ll be impressed with our economy as a whole and with the many components that continue to make it strong.mg

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