Residential surging in Strip District as office development takes a hiatus
The Strip District may be losing some of its development mojo in terms of office construction. But that doesn’t mean the funky neighborhood with industrial roots is lacking for growth.
While no new office projects have been announced this year in the Strip, developers are still very active, with their focus switching to residential in an area that has seen a 310% increase in population since 2010.
The residential surge is highlighted in the second annual State of the Strip District report released Wednesday by the Strip District Neighbors community group.
No doubt development remains strong in one of the hottest markets in the region over the past decade, with $723.5 million in projects being built and more than $200 million more in the pipeline, according to the report.
But with the COVID-19 pandemic still shaking the office market in Pittsburgh and elsewhere, some developers are shifting their focus to residential.
In the Strip, 371 apartment and condominium units are under construction, with another 1,649 to be delivered in the next few years, the report stated.
Combined, the amount will exceed the 1,862 units that currently exist in the neighborhood. Developers finished three apartment and condo projects last year, with another five now under construction and nine more announced.
With the additions, the Strip could see another wave of population growth beyond its 2,570 residents, the report predicted.
“Once these new units are completed, the Strip is poised to see its current residential population double again within the next two to three years,” it stated.
Among the projects in the pipeline is the Brickworks — an eight-building development featuring 224 apartments and 60 townhouses on vacant land on Smallman Street owned by Chicago-based McCaffery Interests.
In addition, developer Westrise Capital has scrapped plans for an office project at 3150 Smallman in favor of a 265- unit
apartment complex dubbed Crucible Lofts, the report stated.
Beyond the murky office market, it’s easy to see why developers are gravitating to residential.
The average rent in the Strip is $1,890 for a one-bedroom apartment, $2,674 for a two-bedroom and $1,438 for a studio.
Those rents are on the “upper end of the spectrum” for the region as a whole, said Bryan McCann, senior director of the Cushman & Wakefield real estate firm.
He noted they are that way because the demand is high and most are newly built in an area where there is a very old housing stock.
At the same time, the median sales price for a home in the Strip is $831,574.
According to the report, that was driven to a large extent by sales at 2554 Smallman and the Strip District Brownstones, a pricey townhouse development located behind the produce terminal.
While residential is rising, office development could be cresting, at least for now.
“Development plans for new office product slowed down as uncertainty over the future of the workplace lingered, inflation concerns rose, and the developers sought to fill and construct the 1.5m of new product that was in the pipeline,” the report stated.
“This year did not see any major new office projects announced and some previously proposed developments pivoted to other uses, with multifamily housing continuing to be in high demand.”
However, Gregg Broujos, regional principal of the Colliers International real estate firm, believes the Strip’s office market will bounce back — and soon.
“I think it’s in a bit of a pause, just for this year. I think it will come back strong next year. There’s a bit of a pause because of the pandemic,” he said.
Mr. Broujos expects developers to announce additional office projects for the neighborhood next year or in 2024.
“There’s no denying people like the Strip District,” he said.
One reason residential is surging right now, he added, is that the rate of return on investment is better than it is on office.
“Those types of investments make more sense in the interest rate environment we’re in right now,” he said.
Of course, the Strip is still a vibrant office market, with firms like Aurora, ATI, GNC and the Southwestern Pennsylvania Commission recently relocating their headquarters to the neighborhood. They join companies like Argo AI, Facebook and Apple, among others.
In all, about 11,245 people are employed in the Strip.
Office plans in the works include the McKnight Realty Partners’ redevelopment of 1700 Smallman across from the produce terminal featuring 120,000 square feet of office and retail space.
Acram Group also is in the process of tearing down the New Federal Cold Storage Building on Penn Avenue to clear the path for an office complex with four “mini-towers,” the tallest being 23 stories.
In addition, the Vision on Fifteen, a Burns Scalo speculative project on Smallman, is expected to be finished this summer, adding another 265,000 square feet of office space.
Beyond the office and residential development, the Strip, with its eclectic Penn Avenue retail corridor, draws scores of visitors and tourists.
Overall, as COVID-19 vaccines became available and more people ventured out in 2021, visitors to Penn Avenue business district increased by 47%, the report stated. That contrasts with a 40% decline in 2020 compared to 2019.
Eight new restaurants or retailers opened in the Strip since the start of 2021, with another 16 in the pipeline. Only two have closed, compared to seven in 2020.