A rush to build rentals
The past decade has seen a spike in construction of apartment buildings in the Pittsburgh region, spurred on by tech job growth
As two people who came of age in leafy suburban communities east of Pittsburgh, Adam Quatrini and his wife, Carolina Velez, had never envisioned living in the city’s urban core.
They took a leap of faith three years ago when their real estate agent recommended buying a unit inside Smallman Apartments in the Strip District. At the time, it was one of the few buildings close to the center of the city that was under construction and allowed unit purchases.
Now they can’t imagine living anywhere else.
“We plan to stay in the Strip District, and hopefully raise a family here one day,” said Mr. Quatrini, 33, a worker’s compensation lawyer who works for the Quatrini Rafferty firm, Downtown.
They love walking to their local coffee shop DeFer, grabbing dinner at DiAnoia’s and a drink at Kingfly. They pick up fresh groceries in the Strip District and relish small moments at the apartment complex like speaking to neighbors while getting the mail; or holding the elevator door and striking up conversations that lead to dinner and new friendships. The city bus system is convenient and, when the weather permits, they can walk or ride their bicycles to work.
High-end apartment living hit the Pittsburgh scene in a big way
during the 2010s, thanks to a building boom that reshaped Downtown and surrounding neighborhoods into a residential community. It also expanded housing options in trendy neighborhoods like Lawrenceville, the South Side and East Liberty, with brand new buildings loaded with bells and whistles that made owners of older buildings scramble to stay competitive.
The total number of rental units in the region spiked from 81,600 in 2010 to 93,500 at the end of 2019, according to CoStar Market Analytics, a Washington, D.C.-based commercial real estate research firm.
By contrast, there had been hardly any multifamily construction in 2010.
Most of the growth took place between 2014 and 2016 — a surge that coincided with big tech employers coming to town. Google expanded into Bakery Square in 2014, and others followed. Shortly after that, the Strip District began to heat up.
“I believe the tech buildup gave developers the courage to build,” said Benjamin Atwood, an analyst for Costar. “It brings in money that creates a live, work, play scene around it. They built these buildings with the expectation that tech would support them.”
But new construction of apartment buildings slowed in 2017 and practically came to a halt over the last two years.
“Last year, there were only 479 units delivered in the Pittsburgh metro area, which is the least units constructed in the decade,” Mr. Atwood said. “Compare that to the height in 2016 when the number was 2,100 units coming online.”
A warning bell
For a while, new apartment buildings were going up at such a frenzied pace that signals began flashing red. CBRE real estate rang a warning bell in 2018 with a report that found Pittsburgh was in the midst of a supply surge, with about 4,600 units built within the previous three years — more than the past 15 years combined.
At that time, apartments were starting to fill up at a slower pace in the East End and vacancies in other parts of the city, including Downtown, were continuing to rise. Some Downtown multifamily projects had vacancies as high as 40% up to three years after completion.
Many experts in the real estate industry were skeptical of how many renters in this market had the wherewithal to shell out $1,600 a month for a one-bedroom unit, and how many would be willing to pay that much rent in a city where houses in many communities at that time were available to buy for $100,000 to $150,000.
“I was wondering, who were all these people who would move into these apartments?” said Howard Hoddy Hanna III, chairman of Howard Hanna Real Estate Services.
“But it happened.” The most recent data from Costar shows a 6.5% average vacancy rate on 16,418 luxury apartment units in the Pittsburgh metro area with rents of $1,500 a month. That means the units on average are 93.5% full.
Developers are comfortable building again. Costar reports 1,187 comparable luxury apartment and condo units are currently under construction in the Pittsburgh region.
“The presence of tech giants like Apple, Uber and FaceBook are transforming previously troubled spots across the city into trendy new districts,” Mr. Atwood said. “Areas like the Strip
District, Lawrenceville, Bakery Square and South Side Flats are becoming hot for renters.”
The outer limits
Other markets in the Pittsburgh region that had strong rates of multifamily building activity were North Allegheny and South Allegheny.
Both of those communities had a combined 18 new multifamily projects since 2014, containing about 3,000 units. The majority of those consisted of 4-and 5-star communities, which command higher rents.
In Beaver County, near Shell’s under-construction ethane cracker plant, developers are building two of the largest multifamily projects in a generation. The 120unit Eagles Landing at Mateer Falls and the 140-unit Bridgewater Crossing wouldn’t usually make waves in any other market. In Beaver County, it’s a big deal.
“I haven’t built in this county for 40 years,” said Charles “Chuck” Betters, owner of CJ Better Real Estate Co.
“You are going to have a heck of an influx of people coming in as they build out the cracker plant and then the second wave of the manufacturing that utilizes what the cracker plant produces.”
The 85-unit Rivers Edge of Oakmont condominium complex, started four years ago by developer Brooks & Blair Waterfront Properties LP, brought upscale apartment living to emptynesters who prefer a suburban lifestyle.
Peggy Bresnahan, 76, and her husband Bill, 77, sold their home in O’Hara and started renting a unit in the first phase of the project four years ago. When the second phase was completed two years ago, they moved there and leased a three-bedroom apartment for $3,055 a month.
“Our monthly expenses are lower even though some would think our rent is high,” Mrs. Bresnahan said. “We raised three children in our house and we didn’t need it anymore. The house was a lot of upkeep. It’s easy living here and at our age, that’s what we want. We want to be able to travel when we want and just lock it and leave it.
“For six years, we tried to decide where to go,” she said. “Downtown was an option, but we wanted to stay in the O’Hara and Aspinwall area.”
New life Downtown
But rents are highest in the Downtown market and that is where most of the multifamily building was focused, according to the most recent Costar market report. One-bedroom units Downtown will typically lease for close to $1,500 a month compared to the metro average of around $1,060 a month.
The high-end apartments
Downtown are typically what Costar calls 4- or 5-star, which are usually the ones with exotic amenities like Zen rooms, spin cycles and meditation chambers. For example, the new 205-unit Terminal 21 on First Avenue — clearly aimed at young professionals — is offering creature comforts like coworking space, music rooms and a duckpin bowling alley.
Many of the new residential projects were renovations of historic properties in the Golden Triangle, and that has breathed new life into those buildings.
According to the Pittsburgh Downtown Partnership, the population in Greater Downtown has grown by more than 3,750 in the past 10 years, representing a 31% increase in the residential population, which now stands at 15,860 residents.
“When you look at the sheer number of new residential units in Downtown, it has helped to transform the restaurant and retail and service businesses,” said Jeremy Waldrup, president and CEO of the Pittsburgh Downtown Partnership.
He said in the past two years, 65 new restaurants, retail and service businesses have opened Downtown to serve the growing demand from people who need basic goods and services when the 9-to-5 crowd has left.
Mr. Waldrup describes the growing appeal of living Downtown as a cultural shift for a group of people who were tired of sitting in traffic and decided to move closer to work, as well as empty nesters who no longer had a need for large suburban homes with multiple bedrooms vacated by their children.
“Many of them work here and were entertained here by theater and sports, and these were the empty nesters who were early adopters of Downtown living,” Mr. Waldrop said.
“Then, you had units specifically targeted to people who were just out of college and could walk to dinner, the gym and drinks.”