3 min read March 2023 — In an interview with Invest:, Jack O’Donoghue, managing director of Cushman & Wakefield, discussed the key trends in CRE detailing the growth of industrial and the readiness to meet the needs of MedTech and life sciences companies, the redevelopment of CBD office into residential and the shifts in retail.
What have been some of the key highlights and milestones since Cushman & Wakefield acquired Grant Street Associates, Inc. at the beginning of 2022?
We sold to Cushman & Wakefield in March 2022, and we are thrilled with the opportunity to be plugged 100% into the corporation. Our toolbox increased dramatically, so we are very excited about having more capacity in all specializations of CRE. Cushman & Wakefield is committed to developing a broader platform of services in Pittsburgh. This commitment should open up a variety of opportunities to attract new business, and broaden our base of service providers in both brokerage and property management. We have already experienced an upswing in our Capital Markets service platform with the addition of three new hires. In particular, our multifamily group has been very successful with positive projections moving into a challenging 2023.
Could you share an overview of where Commercial Real Estate is in the region and where you see the key opportunities?
My specialization is in the industrial sector, both locally and nationally. Fortunately, the local industrial market in Pittsburgh remains very strong although tenant activity has tempered down a bit in recent months. The new construction of warehouse and distribution facilities in and around the airport corridor has fostered a significant amount of new companies to our region. Due in part to our topography users must be very strategic with locations as low-cost developable parcels are quite scarce. The proximity to interstate highways, existing customer base, and existing employees is a significant factor when considering new locations. Presently there is approximately a half million square feet of inventory in the airport corridor, and we are expecting an additional million and a half to come online in the next few years. Market rental rates have been on a steady incline in recent years. That being said we are anticipating a slowdown in leasing activity due to tenant hesitancy related to inflation, interest rates, and increasing construction expenses.
On the office front, the major focus of tenant activity has been on the greater downtown areas; Strip District, North Shore, First Ave, and Eastside where a major uptick in new office, retail, and residential development have combined to create new lifestyle communities. The CBD has certainly been hurt by this new wave, but landlords are trying to stem the tide by adding various tenant amenity areas within the traditional high-rise office towers. We are now witnessing a few major office structures being converted to residential and hotel uses. These conversions could help neighboring office properties in two ways: by removing competitive office space from the inventory and placemaking with additional residential offerings, improving the overall vacancy factor in the CBD. Unfortunately, the residue of the pandemic continues to cast a negative effect as companies continue to right size around a hybrid and remote workforce. Smartly, Corporate America has become cognizant of employee desires and is adapting the traditional workplace to satisfy the recruited talent.
Retail in general is a simpler situation. There are always going to be people that want to shop via brick-and-mortar locations even with the big societal shift toward e-commerce shopping. Although this has drastically hurt the specialized or boutique shops, the emergence of lifestyle communities in our up-and-coming neighborhoods has opened the door for their survival. What has been quite baffling is the employment strain in the service industry. The lack of sufficient workforce has certainly taken an obvious toll on all retail but has significantly hurt the restaurant industry.
How is technology being incorporated into real estate to drive efficiencies?
When we talk about internal technology to service our clients better, Cushman & Wakefield is one of the technology leaders. It helps us plan, react and perform better, but it is also cutting-edge in market trends. There is a lot of effort put into analyzing market trends and anticipating new opportunities. In Pittsburgh, the technological and medical industries are growing rapidly, and we have prepared our approach to understand and serve their operational needs. Overall, we monitor, anticipate, and react to market trends to stay on the cutting edge of new market drivers on the horizon. This differentiator separates us from the pack and enables us to meet the CRE needs of those targeted opportunities. Uniquely, Cushman and Wakefield make that difference with myriad professionals dedicated to research & data, appraisers and marketing, to name a few. Information and data have changed the way we are directing our efforts, client communication, and client acquisition.
Considering the tight labor market, what are some of the strategies you are implementing to recruit and retain talent?
Most of our targeted recruiting has been focused on existing professionals within our local CRE industry. Consideration is given to candidates on the periphery of CRE, such as banking, legal, accounting, marketing, management, etc. Interestingly, our local brokerage community is made up of professionals with degrees in these related fields. We do interview quite a number of younger people graduating from college. The challenge locally is exposure to our CRE profession. Many of the area universities do not offer graduate degrees or elective courses in CRE. Mainly, introductions to our profession come by way of mouth.
We have been looking to increase diversity and have been encouraged to participate in programs such as the one sponsored by NAIOP and Robert Morris University. The primary objective is to advance greater social equity while building a pipeline of talent with minority students. We utilize this platform to introduce Commercial Real Estate as an opportunity for a fruitful career path. We are excited about this and related programs and hope to see them flourish in our profession locally and nationally.
Is there anything on a regulatory or policy agenda that you are keeping an eye on?
The state of Pennsylvania is on schedule to pass a 1031 exchange bill, which will help immensely in the capital market sectors. Additionally, the city of Pittsburgh is considering changing the residential code which limits the number of conversions that can occur. It is going to help with the demand for urban living opportunities.
What is your outlook for Cushman & Wakefield and CRE for the next two to three years?
On a national scale, C&W continues to grow and invest in technology and client/broker services. The results of which trickle down to the local offices and scale to our client base. Service and better business practice seems to be the most successful characteristics of our company. In summary, our CRE outlook from a local perspective remains cautiously optimistic. Industrial may slow down a bit but will be in a healthy environment over the next few years. Office will be the most sensitive and closely watched. With right sizing and an unclear path of how corporations will restructure their employee base, this will be critical to market recovery. There will need to be stabilization before we start seeing growth in the office market. We are more bullish on retail and hopefully, the return of employees to the office will help revive retail in the CBD. The capital markets will have to adjust to the impact of the rising interest rates, but we believe activity will remain positive.
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