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Pennsylvania Commercial Real Estate Challenges

Pennsylvania Commercial Real Estate Challenges

Pittsburgh’s commercial real estate market is facing severe challenges. The office-building vacancy rate has soared to a record high of 21.8% in Q1 2023​​​.¹ This stark increase shows a troubling trend for property owners.

These challenges in Pennsylvania commercial real estate are not limited to Pittsburgh alone. Across the state, commercial property owners are grappling with similar issues. High vacancy rates, increasing tenant demands, and economic instability are just a few of the obstacles in Pennsylvania commercial real estate.

The post-pandemic shift to remote work has drastically reduced the need for office space. It leaves many buildings underutilized and pushes owners to offer concessions to attract tenants . This scenario is further aggravated by rising operational costs and maintenance expenses, which strain financial resources even more.

Given these limitations in Pennsylvania commercial real estate, now is the time to consider selling your commercial properties. Selling to a trusted partner can provide financial stability, freeing you from the burden of managing vacant properties and dealing with the unpredictable market.

In this article, we will explore the specific issues in Pennsylvania commercial real estate, highlight why selling now makes sense, and show how Point Acquisitions can help you achieve a smooth and profitable transition.

Why Are Vacancy Rates So High in Pennsylvania?

The pandemic and the shift to remote work have led to a significant rise in office-building vacancies. In Pittsburgh, the vacancy rate has surged, more than doubling since 2014​​.²

This dramatic increase in vacancy rates poses several challenges for property owners. High vacancies lead to lower rental incomes, forcing owners to offer steep discounts and concessions to attract tenants.

The barriers in Pennsylvania commercial real estate are growing, with property values declining as the market becomes more saturated with available spaces. These roadblocks in Pennsylvania commercial real estate create a cycle of decreased revenue and increased financial strain on owners.

The economic impact of these vacancies extends beyond individual property owners. Local and state economies suffer as well. Empty buildings:

  • Contribute to urban decay
  • Reduce tax revenues
  • Diminish the vibrancy of commercial districts

This scenario underscores the importance of considering a sale. Companies like Point Acquisitions can offer a way out of these dilemmas in Pennsylvania commercial real estate. By selling your property now, you can avoid the pitfalls of a volatile market, secure your financial future, and contribute to the revitalization of your community.

What Specific Challenges Are Pennsylvania’s Property Owners Facing?

One of the major issues in Pennsylvania commercial real estate is the “flight to quality.” This trend sees businesses moving to newer, higher-quality buildings with modern amenities. As a result, older and less attractive properties are left vacant. More than half of the new office deals in Pittsburgh’s commercial real estate market involve “Class A” or “Trophy” rated buildings​. These premium spaces offer features like proximity to stations, fitness centers, and ample natural lighting.

The complexities in Pennsylvania commercial real estate aren’t helped by growing tenant demands. Today’s tenants are looking for more than just office space. They want full packages that include rent abatements and tenant improvement allowances. These demands place a heavy financial burden on property owners, who must invest in upgrades and offer concessions just to remain competitive.

The concerns in Pennsylvania commercial real estate signal a need for property owners to reassess their strategies. By offloading properties that are no longer profitable or too costly to maintain, owners secure their financial future and avoid the ongoing challenges of tenant management and property upgrades.

How Do Broader Economic and Social Issues Impact Pennsylvania’s Commercial Real Estate?

One of the larger concerns in Pennsylvania commercial real estate is the rising rates of homelessness and crime, particularly in Pittsburgh. Homelessness in the city increased by 23% in 2022, and crime rates have also surged, with incidents of robbery, rape, and assault on the rise​.³ These social issues create a hostile environment for potential tenants and buyers.

High crime rates deter businesses from leasing office space in affected areas. The visibility of homelessness also negatively affects the perception of safety and community wellbeing. These stumbling blocks make it increasingly difficult for property owners to attract and retain tenants.

Another layer to the problem is the influence of union-dominated politics and policies in Pittsburgh and other Pennsylvania cities. The strong presence of unions, such as SEIU Healthcare, creates an unstable business environment. Union influence leads to higher operating costs and stricter labor regulations. These make it more challenging for businesses to thrive. This environment discourages investment and drives businesses away from union-heavy areas​.

What Does the Future Hold for Pennsylvania’s Commercial Real Estate?

The long-term trends in Pennsylvania’s commercial real estate market are concerning. The ongoing preference for remote work is reducing the need for office space. This shift isn’t just a temporary reaction to the pandemic but a lasting change in how businesses operate. Companies are:

  • Downsizing their office footprints
  • Opting for smaller, more efficient spaces
  • Embracing hybrid work models

This trend is expected to continue, putting additional pressure on an already struggling market​.

These long-term trends are exacerbating the problems faced in Pennsylvania commercial real estate. As businesses reduce their office space, older properties become more difficult to lease. This creates a surplus of vacant properties, driving down rental rates and property values.

The limitations in Pennsylvania commercial real estate are becoming more pronounced as the market adapts to these new realities. Property owners are caught in a cycle of declining demand and rising costs, with no clear end in sight​.

Comparing Pennsylvania’s situation to other U.S. cities highlights that these setbacks in Pennsylvania commercial real estate are part of a broader national trend. Cities like Columbus, St. Louis, and Cincinnati are experiencing similar challenges with high vacancy rates and reduced office space needs​​.⁴

This widespread issue underscores the urgency for property owners to act. Selling your property to a trusted buyer like Point Acquisitions offers a strategic way out. By selling now, you can avoid the continuing roadblocks in Pennsylvania commercial real estate, secure your financial future, and reinvest in more promising opportunities.

Sources courtesy of Forecasting the Future of Pittsburgh’s Commercial Real Estate,

RealClearPennsylvania

About The Author

Jesse Shemesh

With a wealth of experience in nurturing diverse commercial real estate investment portfolios across multiple markets, I actively engage in the development and execution of deals spanning all asset classes. My expertise lies in collaborating with strategic partners, including corporate real estate professionals, fund managers, developers, and investors, to source, identify, and entitle opportunities. At Point Acquisitions, we take pride in our unique, proprietary platform that specializes in property acquisitions, generating a steady stream of organic deal flow that sets us apart from the competition. As a seasoned professional in the real estate industry, I am dedicated to creating lasting partnerships and delivering exceptional results for all stakeholders.

Disclaimer

Please note that Point Acquisitions is not a tax expert or tax advisor. The information on our blogs and pages is for general informational purposes only and should not be relied upon as legal, tax, or accounting advice. Any information provided does not constitute professional advice or create an attorney-client or any other professional relationship. We recommend that you consult with your tax advisor or seek professional advice before making any decisions based on the information provided on our blogs and pages. Point Acquisitions is not responsible for any actions taken based on the information provided on our blogs and pages.

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