Pittsburgh, Pa. (Flickr image courtesy of Hannaford.)
Over the last decade, this is where apartment complexes got built: in Houston, where the vacancy rate now stands at 10.2 percent; in Jacksonville, a vacancy rate of 9.7 percent; in Las Vegas, with a 9.2 percent vacancy rate; in Atlanta, a vacancy rate of 9.1 percent; and in Phoenix, a vacancy rate of 8.3 percent.
This is the one town big apartment developers simply avoided: Pittsburgh, Pa.
Too bad, because the old steel city is experiencing a workplace renaissance, and finally, after years of emigration, a population stabilization. The vacancy rate for Pittsburgh’s multifamily market chalks in at a sparkling 3.2 percent, the second best in the country after San Jose, Calif., according to the National Association of Realtors.
That’s right — San Jose, in the heart of Silicon Valley, and Pittsburgh, sharing the same spotlight. Who’d have thunk it?
Daniel Murrer and his father own a small apartment building of 22 units in Pittsburgh. It has been 100 percent leased since last September, and they have renewals for every single unit through April 2012.
Murrer not only dabbles in real estate, but his Pittsburgh company, RealSTATs, keeps track of local housing data.
I asked him about multifamily real estate. The city’s low vacancies, he said, are not only due to the lack of construction but for about six years the Pittsburgh metro area had been experiencing a decline in single-family homes sales.
"If you have a hard time getting a mortgage, than you have to rent," Murrer said.
Steel City had been in the throes of what Murrer calls the "Pittsburgh Paradox," in which home sales were sliding but prices were climbing. That might have been due to the crosscurrents of the city’s long, painfully slow demographic recovery.
"We have seen a dramatic turnaround from the dark days of the 1970s and early 1980s when the steel industry was in decline," said Robert Dye, a senior vice president and senior economist for PNC Financial Services Group in Pittsburgh. "Once the 2010 census data is recalibrated, I would expect to see the population trend line not just leveling off but actually showing some growth."
The important suburban counties, Washington and Butler, actually showed population growth over the past 10 years, said Dye. In the 2010 census, Allegheny County (Pittsburgh) showed only a slight population ebbing, but, once again, Dye predicts those days of decline should be over.
How did an old industrial city like Pittsburgh avoid being another Detroit or Cleveland?
For one thing, most people don’t realize that Pittsburgh, like Boston, has always been a university city. It boasts two major institutes of higher learning, Carnegie Mellon University and University of Pittsburgh; a medium-size institution, Duquesne University; and three smaller, private four-year colleges.
The two key universities boast excellence in a couple of key fields: engineering and robotics at Carnegie Mellon, and medicine at Pitt.
Even with these advantages, Pittsburgh was losing its graduates to more attractive locales. That has finally changed.
"The region is doing a better job of holding on to its young people, because the local technology industries have done very well," said Dye. "Biotech, manufacturing technologies, robotics are all interesting and dynamic areas that young people want to be employed in."
PNC Financial’s market outlook at the close of 2010 reported: "Not only did Pittsburgh avoid the worst of the recession, but the city’s several educational institutions and large array of healthcare-related employers greatly steadied the local economy."
In addition, such industrial and technology powerhouses as Westinghouse and Google have committed to Pittsburgh, hiring thousands of employees. Meanwhile, the city is also attracting the myriad firms looking to drill for natural gas in the East Coast’s Marcellus Shale Formation.
More workers mean more people filling up apartments.
New multifamily building in Pittsburgh has always been conservative, especially over the last 20 years, but demand has begun to outpace supply, said George Ratiu, an economist with the National Association of Realtors.
"The multifamily vacancy rate for Pittsburgh has been historically low," Ratiu said. "Vacancy rates broached double digits around 1999 and had been steadily declining over the past two decades."
A little bit of catch-up is in order. According to PNC’s numbers, on a national basis, permits for multifamily dropped 60.5 percent in 2009. For the same year, multifamily permits slipped just 10 percent in Pittsburgh. Last year, multifamily permits nationally were dipped 2.6 percent. In Pittsburgh, multifamily permitting was up slightly, by 0.6 percent.
For 2011, PNC estimates multifamily permits for the country should be up 21.2 percent. In Pittsburgh, multifamily permits could jump by as much as 55.2 percent.
Unlike in the Sunbelt, not all of these new units will be suburban, garden apartments.
"The downtown is changing," said Dye. "It used to be in downtown, you rolled up the sidewalks at night, but there’s been a lot of condo development downtown."
Murrer tells me the story of a local developer who converted an old, vacant dairy into loft-condos. The company, called Solara Ventures LLC, has been so successful that for two months running it was the third-best Pittsburgh developer in terms of number of residential units sold.
Over the past three decades a lot of capital has poured into the Southeast to build new apartment complexes. This was because a lot of people from the northern environs moved south. However, there are still pockets in the Midwest and Northeast where the exodus was not nearly so pronounced and are doing quite well. In 2010, the Pittsburgh market caught the attention of a lot more investors because there is real opportunity for developers who want to be where the recession is already history.
From a high-technology and natural resources point of view, Dye said, "The economy of western Pennsylvania could start looking like the economy of Texas."