Thursday, September 27, 2012

Pittsburgh Downtown Apartment Boom

Rents are going up, way up. Supply isn't keeping up with demand in Downtown Pittsburgh, which has made apartment real estate a hot commodity with out-of-region investors. What's driving the rush? The economy:

Institutional buyers like the Pittsburgh market because of its high level of rental consistancy in recent years and it’s emergence as an energy market. Apartments in Pittsburgh, and others nationally, are attracting higher prices, Willett said.

Many developers are interested in building apartments in the Pittsburgh region, but often can’t find adequate land, he said.

“Pittsburgh’s apartment market is very strong, with a vacancy rate significantly lower than those nationally, and rents have been trending upwards,” said Ryan Severino, senior ecomonist with Reis Inc., a New York real estate research firm.

“Also, Pittsburgh’s economy is diversified with its universities, medical and financial services. It has been good reinventing itself,” he said.

Pittsburgh isn't Portland cool, so it has to rely on economic development to attract residents. The bet is paying dividends for the metro and the urban core. Slow and steady wins the race.

More telling is the talent strategy. Portland relies on imports. The Creative Class is notoriously fickle. Emerald cities are hot now. What about tomorrow? EMSI has an instructive post about the alleged shortage of IT workers:

The Washington, D.C. metro has by far the largest undersupply of IT workers (though it imports much of its talent from other areas), and three metros you’d probably expect to see are next — Seattle, San Francisco, and San Jose. Are all heavily concentrated in tech industries and hubs for computer-related innovation.

The biggest surpluses, not including Phoenix, are mostly metros with more traditional, manufacturing-based economies: Chicago, Pittsburgh, Philadelphia, Milwaukee, and Detroit.

EMSI misses the mark characterizing the surplus metros. Los Angeles also has a glut of IT workers. For the industry, LA is a talent producer. Portland is a talent importer, which is a precarious strategy that provides short term results. If more firms relocate to where the talent is produced, Portland is screwed.

Hence, Pittsburgh is a better real estate investment. Portland is a fad, a fetish. Hard to say where rents will be in three years. That region is coasting on positive mesofacts. The momentum of talent migration is still favorable. Beware of Rust Belt Chic.

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