Pittsburgh market unshaken as others see sublease glut

Pittsburgh's commercial real estate market is flying steady, even as some of the nation's strongest office markets have taken a nose dive.

In the third quarter, the total amount of sublease office space available nationwide increased for the first time in five years, as some businesses took a hit from the subprime meltdown and put more of their space on the market, according to a report from Chicago-based Grubb & Ellis Co.

In Pittsburgh, this doesn't appear to be a problem so far.

The amount of sublease space decreased in the region over the past few years, but continued to drop in the third quarter, according to a local market report from Grubb & Ellis' Downtown office.

Total sublease space available in the central business district in the third quarter was 124,525 square feet, according to the report, down from 145,002 square feet in the second quarter and a high of more than 400,000 square feet as recently as 2002.

Likewise, sublease space in the fringe and suburban markets was down in the third quarter, with 108,772 square feet available, down from 155,587 square feet in the second quarter.

A glut of sublease space in a market can drive down office rents since subleasers generally secure space more cheaply and with less restrictions than traditional office tenants, said Nick Matt, a managing director with Downtown-based Holliday Fenoglio Fowler LP, a real estate investment and brokerage company.

"It's a lower-cost alternative, and at the same time, it is a more flexible alternative," Matt said.

Furthermore, a company that is trying to sublease much of its space will likely vacate or greatly reduce its space when the lease expires, Matt said.

One example is Ariba Inc., which tried unsuccessfully to lease about half of its 182,000 square feet in One Oliver Plaza Downtown for years. In January, the Sunnyvale, Calif.-based software company finalized an agreement to stay in the building through at least 2017, but gave back about 90,000 square feet to the landlord.

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source: bizjournals.com