UPMC gobbling up Downtown office space

UPMC is expanding its presence Downtown, both at its headquarters in the U.S. Steel Tower and in the former Gimbels building on Smithfield Street.

A spokeswoman attributed the expansion in part to UPMC’s growing health plan. With the additions, the Pittsburgh health care giant will occupy more than a million square feet of space in the central business district.

While the expansion isn’t expected to have much of an impact on lease rates Downtown, it could boost efforts to sell the U.S. Steel Tower, which has been on the market since January.

The health system plans to occupy another 52,911 square feet of space in the U.S. Steel building by Dec. 1. It is adding another 32,416 square feet in the

Heinz 57 Center, bringing that building to near full occupancy.

In all, the health care system will gobble up another 85,327 square feet of space in the Golden Triangle before the end of the year, giving it a total of nearly 1.25 million square feet.

The decision to increase its presence in the 64-story U.S. Steel Tower comes at a time the Downtown landmark — the city’s tallest — is up for sale. The expansion could have a positive impact on those efforts, according to one area real estate broker.

UPMC now occupies 908,661 square feet in the 2.3million-square-foot building, according to spokeswoman Gloria Kreps. That will increaseto 923,657 square feet on Oct.1 and to 961,572 on Dec. 1.

And with the additional space that the health system is taking nearby in the 750,000-square-foot Heinz 57 Center, it will occupy a total of 285,500 square feet there.

In a statement, Ms. Kreps said, “We have expanded our leased space Downtown, in large part to accommodate the tremendous growth of the UPMC Health Plan.”

She did not know how many employees would be added Downtown with the expansion.

Dan Adamski, managing director of the Jones Lang LaSalle real estate firm, said the increased UPMC footprint will benefit the Golden Triangle. “It’s a lot of positive absorption, which is good for Downtown because there hasn’t been a lot of activity of late,” he said.

Mr. Adamski also believes the expansion better positions U.S. Steel Tower for a sale. The current owner, New Yorkbased 601W Cos., is seeking as muchas $350 million.

“When your anchor tenant expands and you’re trying to sell the building, that is a very positive thing, unless they forecasted the expansion in the pricing,” he said.

A large New York private equity firm, which has yet to be identified, reportedly has an interest in buying the property.

In 2008, UPMC occupied 185,000 square feet in the signature Downtown building, Mr. Adamski said. By December, it should have more than fivetimes that amount.

Neither Mr. Adamski nor Gregg Broujos, managing director and founding principal of the Colliers International real estate firm, expect the health system’s expansion to have much of an impact on Downtownr ental rates.

While the expansion takes space off the market, Mr. Adamski noted there are still holes to fill, such as vacancies at525 William Penn Place.

The current average asking price for the top-of-theline space Downtown is $29.11 a square foot, according to Jones Lang LaSalle. The vacancy rate for such space is 9.5 percent.

Although UPMC will occupy more than 1 million square feet in two buildings, that’s still small compared to the 18 million square feet of competitive office space located Downtown.

Unlike Mr. Adamski, Mr. Broujos didn’t envision UPMC’s expansion having a huge impact on efforts to sell the U.S. Steel Tower simply because the nonprofit already has such a huge presence there.

“But it’s a good sign for the building and for the new owner, whoever it is,” he said.