Drop in office vacancy rate shows Downtown Pittsburgh conversion plans may be working, report finds

By Mark Belko / Pittsburgh Post-Gazette

The drive to convert failing office space in Downtown into apartments may already be having a positive impact, at least in terms of the vacancy rate.

That’s one of the conclusions of the third-quarter office report for Pittsburgh released Thursday by the Jones Lang LaSalle real estate firm.

JLL noted that the Downtown vacancy rate, at 19.5%, is lower than the overall rate of 21.33% for the Pittsburgh market.

That suggests that “the removal of high-vacancy office buildings for conversion opportunities may already be positively impacting market fundamentals,” the report stated.

JLL did not cite any specific examples, but several office-to-residential conversions are already underway or have been recently completed within the boundaries of the Golden Triangle.

They include the transformation of the 14-story former GNC headquarters into 254 apartments. Hullett Properties recently completed the conversion of the six-story Triangle Building into 15 residences. The 19-story Allegheny Building on Forbes Avenue has been turned into 190 apartments.

In addition, Beacon Communities has started a project to convert the 11-story First and Market office building into 93 apartments for seniors.

Another big office-to-residential project in the planning stages involves converting the historic Gulf Tower into 226 apartments and a 126-room luxury hotel. The owner, Rugby Realty, also recently won city approval to convert an eight-story office building at 933 Penn Ave. into 70 apartments.

City officials and other stakeholders have been pushing office-to-residential conversions in a bid to stabilize the Downtown office market, which has been battered by high office vacancies and plummeting property values coming out of the pandemic.

As more office buildings are converted to apartments or condominiums, that office space is taken off the market. That, in turn, reduces vacancy rates and makes the remaining office space more competitive.

“These building evolutions are helping rebalance the office sector and creating a more sustainable future for Pittsburgh,” said Dan Adamski, JLL executive managing director.

JLL’s third-quarter report also found that the market overall is showing signs of recovery. For the second straight quarter, more space was leased than vacated, signs of “increased tenant activity” and “reduced uncertainty” among employers regarding their office needs.

“Businesses are implementing long-term workplace strategies prioritizing collaboration space to enhance engagement and culture,” the report stated.

Suburban submarkets, which saw 190,022 square feet of positive absorption (more space leased than vacated) are outperforming urban areas, where 102,645 more square feet was vacated than leased.

“Occupancy losses in the urban cluster continue to be driven by rightsizing in the [central business district], predominantly from financial institutions,” the JLL report stated.

Nonetheless, the third quarter did see a surge of activity on the North Shore and in the Strip District, with those and other Downtown fringe areas accounting for more than 40% of all new leasing activity in the quarter. One of the big signings involved the 2025 relocation of Huntington Bank from Downtown to the Strip.

“While the Pittsburgh office market continues to face challenges, particularly in the CBD, signs of recovery are emerging. The data shows marginally declining vacancy rates and increased leasing activity, especially in suburban areas and fringe urban clusters,” the report stated.

Top-of-the-market Class A space performed well in the quarter, with an asking rent of $30.26 a square foot compared to $26.63 a square foot in the overall market and a lower vacancy rate than the market average.

Mr. Adamski said the numbers confirm that firms “are continuing their ‘flight to quality’ by leasing the very best office buildings in the market. These trends are driving momentum across the office commercial real estate market and helping Downtown Pittsburgh trend positively.”

“Overall, this report should be seen as evidence that Downtown Pittsburgh continues to emerge from the COVID-induced downturn by evolving into a more residential-focused and less office-centric environment,” he added.

The JLL report is the second to suggest that the Pittsburgh office market is showing signs of recovery from the COVID-19 doldrums. Earlier this month, the Colliers real estate firm drew many of the same conclusions in releasing its third quarter report.