Officials say the future of Downtown is residential, but getting there will be tough
More people have returned to Downtown Pittsburgh for work, but the number of employees reporting to offices in the Golden Triangle each day remains far below pre-pandemic levels. That has hurt transit service and restaurants, but officials also see an opportunity: They say the future of Downtown depends on attracting new residents, and they have a plan to do so.
According to data from the Pittsburgh Downtown Partnership, or PDP, an average of 34,836 employees visited Downtown daily in October. That’s just 49% of the 70,099 employees in the central business district on any given day in January 2020.
As companies nationwide turn to a mix of remote and in-person work, the employee occupancy rate at offices Downtown stood at just 22% last month — the highest it’s been since September 2020, according to the PDP’s Downtown Activity Dashboard.
“We still have a number of major employers who have a relatively small number of individuals coming into the office,” said PDP President Jeremy Waldrup. “I do believe that will change, but I think it's going to be slow.”
Waldrup said businesses are concerned about employee retention amid a tight labor market, and so many employers have maintained hybrid work schedules to keep employees happy.
That has contributed to a steep decline in bus ridership throughout the city. When workers do go into the office, people are opting to drive instead of taking public transit like they did before the pandemic, Waldrup explained. Bus ridership rates in October 2022 were just 40% of what they were in October 2019.
“They're going to treat themselves to that parking spot across the street from their office building, because it used to be that that garage was 94% occupied,” he said. “Now it's in the sixties.”
The leasing market reflects those changes. With fewer people in the office each day, businesses that have renewed leases downtown have often opted to downsize their footprint by as much as 20 to 30%, Waldrup said.
In an effort to draw employees back, businesses are prioritizing Class A, “trophy” office space and investing in amenities, like communal spaces and coffee shops.
“Folks are looking at maybe improving their current office experience for their workforce, providing nicer spaces, better amenities,” Waldrup explained. “And we have seen significant investments in most of our major office buildings in Downtown Pittsburgh.”
‘Definitely not a sprint’
But while there’s still a market for top-tier office space, working from home is “reducing the pool of tenants that are looking for lower-tier space and maybe less desirable locations,” said Jessica Morin, who leads U.S. research for real estate firm CBRE. “That’s going to really increase that supply of undesirable office [space].”
That’s left a lot of empty rooms Downtown – more than 11 million square feet of it as of this time last year, according to the Urban Redevelopment Authority. Waldrup estimates the vacancy rate has since dropped to about half of that. Even so, that’s still as if 95 football fields were stacked into buildings all over the Central Business District, with nobody on them.
But what began as a crisis has begun to look like an opportunity, Waldrup said.
“Our ability to pivot and create more residential units is going to be crucial in our ability to … maintain vibrant streets,” he said.
In July, city, county, and state officials announced a $9 million pilot to convert Downtown office spaces into homes.
There’s an oversupply of offices and a need for housing, “so it seems like a perfect solution to start converting” the former into the latter, said Morin. “However, conversions are challenging.”
Steven Paynter is a principal and architect with architecture, design, and consulting firm Gensler, where he also leads resilient design. He created a dashboard that analyzes buildings based on a range of characteristics to see if they make good candidates for conversion. And of the more than 400 buildings in downtowns he’s analyzed throughout North America, he said, “Seventy percent of the time it doesn't make sense” to convert an office into apartments.
The reasons why are as varied as the buildings themselves. There may be too many elevators, or the ceilings are too high; maybe the building facade has to be replaced or there isn’t enough parking. Ultimately, what all those reasons boil down to is that conversion is expensive, and future rental income frequently doesn’t cover the costs.
Paynter said the conversion success rate varies by city. But generally, newer cities have more buildings that are good candidates for conversion, while older cities like Pittsburgh have fewer.
Paynter could not comment specifically on Pittsburgh, but he said many of the things that make a space less desirable for office use – such as low ceilings – can make for great homes. And even a limited number of office-to-apartment conversions can make a difference, he said, citing Calgary, Canada’s funding for six such projects.
“It's going to increase their downtown … weekend population by 24 percent,” he said. “It's not a lot of projects, but it makes a huge impact.”
Those Class B and Class C buildings are exactly what officials plan to target with the pilot program, said Deputy Mayor Jake Pawlak.
“It is a pilot,” he stressed. “It’s intended to do a handful of high-quality projects pretty quickly, to … make the case to the state to potentially establish a broader program.”
But Pittsburgh has added an extra layer of difficulty: the pilot program emphasizes the creation of apartments affordable to people who make between 50 and 80 percent of the area median income.
That makes the math harder, said Morin of CBRE.
“It's really been in the luxury tier to have the rents work to make these projects pencil out,” she said. “So while we absolutely need affordable housing, [those] aren't really the projects that we're seeing.”
Right now, the average rent for a studio apartment Downtown clocks in at nearly $1,400, according to the PDP. A two-bedroom is about $2,100.
Getting the math to work on affordable housing is always difficult, and most often relies on tax credits and housing vouchers. But federal pandemic relief money offered a new source of funding: The aid is expected to cover up to $3 million, or 40 percent of the total costs, for projects that create affordable housing.
Officials agree that workers with low and moderate incomes need to be able to live Downtown. Units created through the pilot will be an important step for Downtown, but a small one.
The hope is to use the pilot to raise tens of millions of dollars more in funding, Waldrup said, and they are actively working to attract private money, too.
“This is definitely not a sprint. This is a marathon of projects,” he said, noting that the goal is to double Downtown’s residential population. “We're going to need to make sure that we have money here next year and then three years from now – but also seven, 10, 15 years from now as we continue to see our region grow and change and evolve.”
The conversion pilot is expected to launch early next year.