PITTSBURGH — It’s Sunday morning and the Strip District sizzles with tourists hitting up President Obama’s favorite breakfast spot. Others duck into one of the many immigrant-owned markets along Penn Avenue or grab some Steelers merch at one of the many superfan stores. The area resembles a smaller scale version of Seattle’s Pike Place Market, mixed in with a little bit of Canal Street in New York City.
And for years, that was it. When the work week started, the neighborhood emptied out. But not anymore.
After Pittsburgh’s steel and manufacturing scenes wilted in the 1970s and 1980s, the Strip District reinvented itself as a bustling market district. But now it has also become a thriving tech center and ground zero for a nascent construction boom, with developers putting up new offices, apartments and restaurants. Neighboring Lawrenceville has evolved from an area the locals avoided to one of the hottest housing markets in town, with homes selling for five to 10 times what they might have even five years ago.
But this phenomenon has not yet extended to the entire city. Pittsburgh is a city of neighborhoods, more than 90 in total. Some are white-hot, with a dwindling supply of office space, bidding wars for houses, and new restaurants opening all the time. Others have yet to rebound from decades of neglect. And still others are grappling with the consequences of change, seeking to preserve the city as a place for longtime residents while bracing for a potential influx of newcomers.
“We’re rebuilding the city’s infrastructure at the same time that we’re trying to safeguard some neighborhoods from too much boom, and balance and incentivize investment in neighborhoods that are disinvested,” said Pittsburgh City Councilmember Deb Gross, whose district includes the neighborhoods at the center of Pittsburgh’s tech resurgence.
GeekWire has witnessed this changing landscape first-hand during our month-long stay in Pittsburgh, seeing the impact of the tech boom, getting a sense for what’s to come in this longtime industrial city, and contrasting the picture here with what we’ve seen over the past decade in our longtime home of Seattle.
Pittsburgh’s real estate numbers bear out the complicated nature of its commercial and residential markets.
- Office rents in Pittsburgh are on the rise at an average of $25.92 per square foot for top-tier, or Class A, buildings. In the most in-demand neighborhoods — close to the universities — landlords are asking for close to $40 per square foot in new buildings, according to real estate firm CBRE, an eye-opening number that comes close to Seattle’s top-end rates of about $42 per square foot for new buildings in the neighborhoods surrounding Amazon’s headquarters.
- Less than 500,000 square feet of office space is under construction in Pittsburgh as of the end of last year. But in the neighborhoods surrounding downtown, another 800,000 square feet of office space is planned. Even more square footage has come by way of bringing old buildings back to life.
- Pittsburgh still has plenty of available office space, with a vacancy rate of close to 16 percent, according to the most recent quarterly report from real estate company JLL. Much of the tech activity is focused near the universities. Those areas have a pretty low vacancy rate of about 6 percent, versus downtown, which is home to more traditional businesses and has about 15 percent vacancy. Around 10 percent vacancy is considered a healthy market, and tech hubs like San Francisco and Seattle hover around this mark. But in the hottest neighborhoods, despite ramped up construction, only about 4 percent of office space is vacant.
- Home values in Pittsburgh have risen 56 percent to $130,000 since 2011, according to Zillow, though that still remains below the national median home price. Pittsburgh is starting to get younger — CBRE reports that the population of millennials increased by close to 18 percent from 2010 to 2015, the most among smaller tech markets — and that is sure to further boost housing demands. But despite this millennial influx, Pittsburgh’s overall population has continued to decline, and the city has lost a quarter of its black population since 1980.
- Apartment rents citywide actually decreased since 2011 to an average of $1,075 a month as of last year, according to CBRE. However, apartments in popular neighborhoods near tech hubs command close to a 50 percent premium over the city average at more than $1,500 a month, according to RentCafe, and bigger two-bedroom units are starting to go for close to $2,000.
- As the tech sector gathered momentum, developers responded. According to a recent CBRE apartment report, more units have been developed in the past three years than in the previous 15 combined. Approximately 1,000 units were opened last year, and another 3,479 units are under construction now.
What’s old is new again
In Seattle, the tech boom has led to the construction of a forest of high rises to serve the growing tech giants and house the people who work for them. But Pittsburgh’s approach has been different, with many developers and companies opting to breathe new life into old buildings — even though it can sometimes be more time-consuming and expensive.
Examples are everywhere: Google’s big office in the East Liberty neighborhood is in a former Nabisco plant. Uber recently leased a big chunk of space in what used to be a steel mill. A former shopping mall is now home to data centers and co-working spaces. Multiple robotics and self-driving startups work out of an old chocolate factory.
“One of the things that is interesting about Pittsburgh is we have capacity in existing structures, and we don’t, compared to a lot of other markets, have a lot of new construction because we are able to reutilize a lot of buildings that are already downtown,” said Jason Stewart, an executive vice president at JLL’s Pittsburgh office.
That is especially true in neighborhoods like Lawrenceville, where robotics companies are setting up shop in old industrial facilities. The roots of the neighborhood’s rise date back close to 25 years, when in 1994 Carnegie Mellon established the National Robotics Engineering Center to help commercialize robotics technology.
The organization chose to set up shop in the Lawrenceville neighborhood, at the time not nearly as hot as it was today. The company spun out or supported numerous robotics companies, leading to the neighborhood’s christening as Robotics Row.
“NREC was really the seed and catalyst that started things — and very importantly at the top of the hill, Children’s Hospital. Those two growth poles have met and made Lawrenceville one of the hot neighborhoods,” said Don Smith, president of Regional Industrial Development Corp., which has redeveloped a lot of the old warehouses and mills that are now home to robotics companies.
Strip District stretches its wings
The Strip is a long, narrow area along the Allegheny River that extends from downtown Pittsburgh almost to the Lawrenceville neighborhood. The history of the neighborhood dates back to the 19th century, when it joined the city of Pittsburgh as its fifth ward. Proximity to railroads made it an ideal manufacturing hub. It was home to iron mills, glass factories, and later wholesale produce sellers. Produce terminals turned into bustling markets, and a roster of immigrant-owned restaurants and businesses popped up.
The neighborhood has always been a draw. But even a few years ago, only a couple hundred people lived there, and old industrial properties sat empty, waiting for their next phase.
Pittsburgh-based Oxford Development Co. saw serious potential in the neighborhood. The developer’s CEO, Steve Guy, said the company’s interest in the neighborhood dates back to 2011, when Pitt Ohio Trucking was getting ready to move its trucking terminal, freeing up a big chunk of land. Oxford began buying up properties around that site and eventually amassed 16 acres of land. Guy says people thought the idea was crazy, and that he should focus on the south end of the neighborhood, a much more vibrant spot at the time.
“This was completely dark,” Guy said of the area. “It was wires everywhere, dirty pitted streets. Most of the buildings were vacant and dilapidated. “People weren’t on the streets, and if you went there it was dark and dank. Not dangerous, I don’t think they ever had a crime problem there, but it was an industrial location on the decline.”
The company built the first phase of what it called Three Crossings, named for the three rivers. The project included four office buildings totaling 375,000 square feet, 300 residential units and plenty of parking. Today, about 90 percent of that is leased, and Oxford has another 14 acres where it is planning more office, residential and research and development space. And the company could boost that profile to more than 40 acres.
The big break for Oxford came in 2015, when it landed Apple as a tenant in its first Three Crossings office building. Uber was already in the vicinity, but Apple opened the floodgates. In the coming years, Oxford landed a new headquarters for Argo AI, a self-driving vehicle startup backed by a $1 billion investment from Ford, an expansion for Uber and other leases with homegrown startups like machine learning company Petuum.
“It was kind of a snowball rolling down hill, and they all liked the look and they wanted to be together,” Guy said.
The growth of companies in the Strip has increased the population of the neighborhood. The Strip and Lawrenceville have witnessed some of the strongest population growth in the city over the last eight years, and more than 500 apartments are under construction in the two neighborhoods, according to CBRE.
However, a different Pittsburgh neighborhood could see an even bigger transformation in the future, especially if a certain online retail company comes calling.
Hazelwood, on the verge of transformation
Along Pittsburgh’s Monongahela River lies a 178-acre stretch of dormant land poised for an explosive development that could transform the nearby Hazelwood neighborhood.
The land, now known as Hazelwood Green, was once a steel mill site that employed thousands before the industry collapsed. Today, it is a massive, shovel-ready brownfield awaiting a big anchor tenant to transform it into a mixed-use property with housing, offices, and public green spaces. If Amazon selects Pittsburgh for its second headquarters, many believe the company will become Hazelwood Green’s anchor tenant.
But Hazelwood Green’s planners aren’t waiting around for Amazon. The site is already home to Uber’s self-driving test track, a secretive, gated facility where the San Francisco-based company is experimenting with autonomous vehicle technology.
And a former steel mill on the Hazelwood Green property has emerged as a symbol of Pittsburgh’s transformation from industrial city to tech town. A new building will be constructed within the frame of the former Jones & Laughlin Steel Mill 19 to house tenants including the Advanced Robotics for Manufacturing (ARM) Institute, which started inside Carnegie Mellon University before becoming an independent nonprofit.
ARM won an $80 million grant from the U.S. Department of Defense to use robotics to bring new efficiencies to U.S. manufacturing, aiming to revive the domestic industry and creating new jobs in partnership with manufacturing companies, governmental agencies and academic institutions.
“Robots didn’t take our manufacturing jobs away, the inability for our companies to compete did,” said Byron Clayton, who was recently named CEO of the independent nonprofit. “But robots can help bring them back. The proven ability of robots to lower costs while improving quality will help revitalize U.S. manufacturing. That means more jobs for blue and white-collar workers, particularly those interested in pursuing a career in robotics.”
The decision to put ARM at Hazelwood Green, in the former steel mill, shows that Pittsburgh “is serious about combining our robotics expertise and manufacturing legacy to re-establish global leadership in manufacturing,” Clayton said.
Hazelwood Green is owned by three Pittsburgh foundations — and managed by Rebecca Flora, the project director. Her daughter, Katrina Flora serves as the Hazelwood Green’s special projects manager. The project has more than $60 million in funding from the City of Pittsburgh, Allegheny County, and other sources.
Still, the site needs one or more big tenants before it can reach its full potential. Rebecca Flora describes it as “a 20-year project.”
Katrina Flora said there is only so much that can be done on Hazelwood Green without more commercial tenants because of Pittsburgh’s real estate market. She contrasted the market here with those in New York and L.A., “where, if you have a nice office space, it’s probably almost always going to be in-demand,” she said. “In Pittsburgh, it’s a little slower.”
Pittsburgh Profile: Katrina Flora is a boomeranger, UW grad, and urban planner for Hazelwood Green
When development does pick up, it could transform the nearby Hazelwood neighborhood. The working- and middle-class neighborhood suffered from the steel mill closing. As of 2016, it had a 20 percent vacancy rate and poverty rate of around 25 percent, according to the Pittsburgh Post-Gazette. That could all change with the development of Hazelwood Green.
Hazelwood is not unlike Seattle’s South Lake Union. Once a “ghost town” of parking lots and warehouses, the Seattle neighborhood has been completely transformed by Amazon, which planted its headquarters there in 2010. Whether Amazon chooses Pittsburgh or not, Hazelwood Green is determined to attract big job creators, which could have an outsized impact on the neighborhood.
There are already hints of transformation. In January, an investor purchased 18 Hazelwood properties at a price that community leaders said was above market.
But neighborhood activists are determined to take lessons from Pittsburgh’s other booming neighborhoods, like Lawrenceville and the Strip District. A non-profit called Hazelwood Initiative buys vacant and dilapidated properties and tries to secure housing for Hazelwood residents. The organization’s executive director, Sonya Tilghman, is grateful that Hazelwood Green is owned by a consortium of foundations, rather than a private developer.
“It’s 178 acres,” she said. “No doubt it’s going to have a huge impact, but I think the foundation owners are going to be good partners in this.” However, she added, “they can’t control the market.”
If the tech giant were to choose Pittsburgh and the Hazelwood Green project, Tilghman would be concerned about Amazon’s timeline. The company wants to break ground in 2019 and she believes Hazelwood needs about five years to prepare for such an enormous development project.
“I just feel like we need a little bit more time,” she said. “I think it might be a great regional asset, probably, but I’m very concerned about the effect on this community.”
Challenges ahead
All this development has been a boon for property owners who have waited out decades of depopulation, disrepair and difficulty. But recent examples along the West Coast in places like Seattle, San Francisco and Portland have shown that the rising tide of the tech boom does not lift all boats. In fact, it can sink a lot of vessels along the way.
Affordability problems plague cities across the U.S. and are starting to creep into Pittsburgh as well. Civic leaders in Pittsburgh are already thinking about how to blunt the negative side effects of a rebound that the city has been waiting years for.
In Lawrenceville, the companies of Robotics Row have brought plenty of high-paid techies to the neighborhood, and housing prices are certainly on the rise. But the neighborhood has a very clear plan for what it wants to be. It also has a variety of neighborhood organizations to advocate for it.
Lawrenceville Corp. is a nonprofit that both develops projects and helps guide development in the neighborhood. Its mission has shifted in recent years away from encouraging development by any means necessary, to instead finding, building and promoting projects that are good for the neighborhood. Affordable residential and commercial space is an important piece of the puzzle, helping to accomplish one of its goals of keeping the neighborhood’s authenticity as more people and businesses want to be there.
The organization has created a community land trust, which involves building houses and then selling them as affordable housing to lower-income buyers. The developer stays involved, by ground-leasing the land under the house, and the owner is not allowed to turn around and sell the house to the highest bidder. So far, the land trust involves about 35 homes that would sell in today’s market for about $300,000 but are offered at around $125,000 to $150,000.
“I think we are pivoting as a region to say that development at any cost isn’t where we need to be,” said Matthew Galluzzo, Lawrenceville Corp.’s executive director. “We are a region that can set some parameters on the types of development that we want to see, that we can be a balancing force for that, which is new.”
For-profit developers have a role to play in this conversation as well. Oxford, the developer heavily involved in the Strip District, has been building in Pittsburgh for more than 50 years. Guy, the company’s CEO, says Oxford prides itself on having a “zero displacement policy,” meaning it’s not going to tear down a functional 40-unit apartment building to put up one three times bigger. Oxford also aims to reuse existing structures if they can be saved before opting for new construction.
But for as much as developers like Oxford say they want to protect existing residents and businesses, change is inevitable, especially in cities. Developers must be mindful, Guy says, of how they can build projects that minimize disruptions to others. But ultimately, Guy says it takes a community-wide effort to put protections in place for vulnerable populations as the tech boom continues to grow.
“It’s hard being in the real estate development business because when you do something right you drive value and values go up,” Guy said. “It happens especially in the urban context. But as a community, socially, we have to think about the bigger picture and we do try to do that.”
Tension around displacement is high in Pittsburgh due to historical and current disputes. Construction of the city’s Civic Arena in the 1950s effectively tore apart the Lower Hill District, displacing thousands of families and hundreds of businesses. The arena was torn down in 2012, after the current PPG Paints Arena opened nearby in 2010. The Civic Arena sites remain controversial. They are up for redevelopment, and have been mentioned as a site for Amazon should it choose Pittsburgh for HQ2.
In the East Liberty neighborhood, a plan to tear down the Penn Plaza apartments last summer for a redevelopment project anchored by Whole Foods ignited a broader debate over affordable housing. The uproar caused Whole Foods to back out of plans to build a new 50,000 square-foot store and sparked a revised agreement between the developer, the city, and neighborhood groups.
The city is trying some creative approaches. Working with the Heinz Endowments — one of the Hazelwood Green owners — the city in 2015 launched a plan called p4: People, Planet, Place, and Performance. The goal is to build a new path forward for thriving cities that are also sustainable and inclusive.
The city also recently completed a two-year affordable housing study, which estimated a shortage of 15,000 affordable units in the city. One of the first actions to come out of that is a Housing Opportunity Fund that will receive $10 million per year for the next 12 years to build affordable and maintain affordable housing.
Gross, the city councilmember who district includes Lawrenceville and the Strip, said Pittsburgh is in a unique and challenging position. How does it encourage investments in neighborhoods that desperately need it, while simultaneously working to mitigate the impact of global tech companies and investors sinking their teeth into other parts of the city? The city just two weeks ago shed its financially distressed status with the state, meaning it will have more control over its budget and more tools to figure out housing issues.
Lawrenceville Corp.’s Galluzzo notes that Pittsburgh has always been a resilient place. In recent decades, the city had been mostly forgotten by the market, and local leaders managed to figure it out.
“It’s been uneven no doubt, but I think that has helped to engender that ethos of, ‘We can do it ourselves,'” Galluzzo said.
GeekWire’s Monica Nickelsburg and Todd Bishop contributed to this report.
