As of mid-year 2011, the most recent period for which data for individual markets is available, cap rates on office acquisitions in Manhattan averaged 5.7 percent, in D.C. 5.9 percent and in San Francisco 6.9 percent, according to Real Capital Analytics, a New York City-based research firm.During the same period, cap rates on office acquisitions in Houston averaged 7.2 percent, in Minneapolis 8.3 percent and in Pittsburgh 8.2 percent.As a rule of thumb, cap rates for core office properties in secondary markets currently range between 7.5 percent and 8.5 percent, according to Robert Bach, senior vice president and chief economist with brokerage firm Grubb & Ellis.The hitch is that to justify buyer interest, the secondary cities under consideration have to boast stable job growth and growing economies. ...... “There aren’t too many areas that do have solid job growth right now, but I would say the Texas market offers opportunities, Oklahoma City offers opportunities because it’s an energy and agricultural hub and I would say Pittsburgh has held up surprisingly well in this downturn,” says Bach.
Bach is buying the Pittsburgh recovery. He's not the only one. From Jones Lang LaSalle:
Pittsburgh is on track to remain one of the best performing office markets in the country as a result of diversified leasing activity and demand augmented by the high-tech industry. With a variety of attractive amenities drawing and retaining talent, high-tech companies will continue to follow.
Jones Lang LaSalle labels Pittsburgh as an "emerging high-tech market" on par with Raleigh-Durham, Chicago, and Portland, Oregon (to name a few). The office market is a particular strength. Pittsburgh is a draw for companies and financial capital. Underwriting all that rosy optimism is a strong job market, one of the best in the country.