Friday, September 30, 2011

Job Growth Pittsburgh

Job growth looks very good now in Pittsburgh. The future looks even better. Via Chris Briem, where the big returns are in the current office properties market:

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.


Steve said...

I haven't had a chance to real the full report yet, but there are some things I'm not sure of in this report but I don't think they matter from the Pittsburgh perspective.

I'm surprised the DC area was considered an emerging tech area instead of an already established one. Part of that may have been how the report separated DC and Baltimore which should not be considered separately. The summary for Baltimore had no examples that were truly Baltimore centric. All of them were really extensions of the DC tech industry that happened to be located in greater Baltimore, typically around Ft. Meade or Columbia.

Portland may technically qualify as an "emerging" market but for various reasons I can't see it going anywhere. Portland has too many weaknesses.

Jim Russell said...


I am interested to learn more about your assessment of Portland. What weaknesses do you see holding that metro back?

Steve said...

My comments on Portland were limited to the tech industry that the report covered. That said many of the problems keeping Portland from developing a robust tech industry apply to Portland apply to other industries in Portland and the city in general.

When you think of the tech industry in Portland what do you think of? Companies from elsewhere who have branch offices and facilities there. That's it. That's not only different from places like Silicon Valley or Boston, but it's also very different than Pittsburgh. When you think of the tech industry in PGH you think of robotics, CMU, and many other things. You can't come up with the same for Portland.

All major tech industry areas have a premier university involved with tech. SV has Stanford. Boston has MIT. Pittsburgh has CMU. The only exception to this is the DC area which was the result of the existence of the federal government. Portland does not have a Stanford, MIT, or CMU. The only way I could see that changing is if the Oregon Institute of Technology, for example, moved from Southern Oregon to Portland. That has an almost zero chance if happening.

Even things that should expand the Portland tech industry don't. Over the last several years there has been a data center building craze. A lot of it ended up wherever there was cheap power. Quite a few of these data centers ended up within a hundred or two hundred miles of Portland in rural places like The Dalles but not anywhere near Portland. There was no benefit to putting these data centers anywhere near Portland which wouldn't be the case if Portland was able to have more of a tech industry.

Lastly there is the problem of critical mass. When moving to a place to take a job there is the question of what about the next job. I know of companies in nontraditional areas for tech but they have recruiting problems since the appropriate professionals they want to hire realize that moving to work for such a company means you are no longer a local candidate for other jobs. If you live in SV or even PGH switching jobs without moving is much easier. Portland doesn't have enough tech jobs for a lot of tech professionals to move there. Thus tech companies won't open offices in Portland. It a cycle hard to get out of. Having a major tech university would help solve that problem but Portland doesn't have that.

Light rail and "being cool" doesn't bring in jobs and businesses and certainly not the tech industry despite what Richard Florida says. Portland needs assets it doesn't have to bring in the tech industry so barring a miracle it's not going to happen in Portland.