Pittsburgh Technical Council

Deconstructing Tech Real Estate

Deconstructing Tech Real Estate

Article Published: June 30, 2015

Tech providers don’t just need square footage. They may require “clean” rooms, wet labs, collaborative space, warehousing, and that’s just for starters. Today’s emerging tech leaders want their employees to have access not only to a fully functional work environment, but also to nearby housing, outdoor amenities, and a healthy, vibrant social scene.

Oh, and they may have to expand or retrench on very little notice, dear landlord, so how do you keep those options open, fair, and viable?

Building WebFrom the gleaming buildings of Southpointe in Canonsburg to former ice houses, chocolate factories, and steel mills in Lawrenceville; from the multiple suburban economic development sites of RIDC to a reawakening of technology enterprises Downtown; and from the miracle of East Liberty’s renaissance to the maturity of the South Side as a tech haven; real estate and technology in these parts continue to enjoy a mutually challenging, yet beneficial, marriage.

“Some of the larger tech clients have their own real estate departments, and many know that it’s in their best interest to have someone local representing their concerns as a tenant, because each city has its own characteristics, its own flavor, trends and market conditions” explained Jack Donahue of Donahue Advisors. “Having these relationships adds a lot of value—you can cut through a lot of wasted effort, get better lease terms, and reduce the amount of time the process takes to find the best possible space or lease renewal terms.

“I respect entrepreneurs; they have to take on many new roles to become successful, and some believe they can take the same approach to real estate,” Donahue continued. “They may tell themselves, ‘I am a good negotiator, so I can negotiate a great real estate deal,’ but it’s not true. Real estate is not about negotiation: it’s strategy and process and knowing that there is so much more to negotiate than simply the rental rate.”

He describes a recent transaction as proof of this idea, where a client called inquiring about available space, with square footage and rental rate as the only parameters.

“They were thinking in too general of terms,” he said. “I needed to understand what their business is like today and in the future. We start with the macro view, and get to the micro: first by developing a program with an architect, to map out physical space requirements to accommodate present as well as projected growth; and second by doing  a test fit among top building choices to see how needs match up. You don’t want to outgrow space before the lease expires or be left with unused wasted space once you move in. The good thing about my role is that I don’t make the decision; I guide the client by providing all of the information they need so they can make the best decision for their company. I don’t just find space, but want to protect them by avoiding pitfalls throughout the lease negotiations and after they move in, too.”

Yet, at the same time, tech innovators have a way of moving beyond protective boundaries to create new trends. According to Shawn Fox at Oxford Realty, local tech companies have done just that, even when it comes to delivering real estate.

“We’ve seen ideas come from tech organizations and spill into our more corporate clients,” said Fox. “Ideas like creating smaller space for individuals, and larger spaces for groups of people to collaborate. Tech creates products that change how we operate, and it has the same effect on real estate usage.”

From the Oxford perspective, first Lawrenceville exploded  with tech companies taking up residence in some of the oldest structures in town, and now the same thing is happening in the Strip. Combined, those neighboring areas host some 25 tech companies, from robotics to clean tech and software development, and property values have been driven up significantly.

“We want to look at areas of the city where rents currently are low, and that could support many different functions, with great amenities, bike trails, and the like,” Fox noted. “Lots of cities are rethinking the suburban business park model and looking to the city again. Obsolete spaces become centers of innovation, and we are definitely seeing that here.

“In general, the Pittsburgh community has seen the benefit of the tech industry and how it is changing the culture here,” said Fox. “A lot of credit goes to the university spinouts and companies deciding to stay or locate here: they add a great value to the local economy, including the landlords we work with. Technology is absolutely driving our society.”

Technology also has begun to drive fresh options for real estate locally,  or so said Dana Kraft of the Pittsburgh office of BusinesSuites, a national firm offering shared office space that entered the local market in 2014.

“Most people don’t know that our industry exists, offering a shared environment, shared internet, and a shared professional presence,” said Kraft. “Tech clients get to a point in their evolution where they are ready to take the next step of professionalism, from garage-based startup to more business-oriented setting.”

For tech companies, firms like Kraft’s provide a mailing address, have the phone answered under their name, get regular meeting room access, and avoid building out space. They can move right in at a meaningful cost savings.

Office Space Web“In talking with tech startups, they may not always think about what their space will say to their clients,” Kraft said. “They take pride in their bootstrap history, and that’s great, but larger clients or potential funding sources may want to see something beyond that.

“Tech startup leaders are looking only at square-footage and lease terms, and don’t always think of the impression clients take at first glance. We can be an interim step while a company is waiting for permanent space to get built out, or while decisions on next-step funding are being made.”

“The tech community and its growing size is a great part of what makes the Pittsburgh market so attractive,” Kraft concluded. “Pittsburgh has a strong and diverse economy. That’s good for us, because there’s not a lot of available office space downtown.”

The downtown question remains interesting. The real estate experts interviewed for this story all agreed that vacancy rates downtown are in single digits—a nice “problem” for the region to have. Yet, according to David Koch and Patrick Gruden of CBRE, the Golden Triangle has begun to regain some of its luster for tech companies in particular, even as available space gets tighter.

“It’s interesting to see how downtown has become a viable real estate option for technology companies,” Gruden observed. “The CBRE team has worked with many technology companies over the years. One in particular began in the Birmingham Towers on the South Side, then to South Side Works, and in recent years moved to Four Gateway Center, becoming a real tech pioneer for Downtown. Also, the Union Trust Building is being completely renovated, with the expressed intent of attracting technology companies and becoming a destination center for tech leaders.”

However, while the sleeping downtown giant awakens for tech clients, other sections of the region have experienced some of the most impressive comebacks imaginable.

“What I see in commercial real estate is that a lot of organizations want to be close to the universities,” said CBRE’s Koch. “They want to have the live-work-play environment, the ability to congregate with peers in the area. From a pricing perspective, these have become some of the most premier real estate options locally.”

Gruden agreed, saying, “To see what’s happening in those areas, like East Liberty and the Strip District—hotels, bars, restaurants, urban housing and more—it is very exciting. The entire East End has exploded.”

“These developments are important to create new square footage, because the market is doing very well, with single-digit vacancy rates in several submarkets,” Koch said. “Lawrenceville is another area with a lot of activity: we’re currently working with a Fortune 100 Company Robotics Division, and their preference is to be as close to the Lawrenceville robotics campus as possible. Uber is also looking for space in and around the Strip District because of its proximity to Oakland and the robotics campus.

“We’re beginning to see developers looking more at the Homewood and Point Breeze neighborhoods,” countered Gruden. “If the right people develop it, those areas could prove to be great options for technology companies, still close to the East Liberty action and relatively close to CMU, Pitt, and the other universities. We’ve also seen studies and plans for the development of the land along the Strip District side of the Allegheny River from the Veterans Bridge to the 62nd Street Bridge; there’s a lot of great land there that’s currently underused, making it a potential area for future growth and development.”

RIDC has been an established leader in securing formerly underused properties and transforming them into vibrant campuses for businesses to locate and grow. With 11 locations across southwest Pennsylvania, most with a meaningful tech presence, RIDC has a long-range perspective on how the tech industry has affected the local real estate market.

“The tech-related real estate market is on the upswing now with the entrance of global players like Google, Disney, Intel and Uber,” said Don Smith of the RIDC. “These really have put Pittsburgh on the map, along with the evolution of investments made at the universities, tech transfer programs, and a significant increase of tech startups.

“We spend significant time networking with the tech community,” he added. “Companies don’t come in standard sizes. As they change and move, we’re working to accommodate their needs. The research base here is so strong, all cutting edge.

“Tech companies rely more and more on talent attraction, and we’re seeing that talent is really looking for attractive locations; Lawrenceville has that cache now,” Smith said. “Real estate can be a vital part of this, which helps increase innovation coming out of this region.”

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