Pittsburgh is not your typical Rust Belt market.
The Steel City is making the rounds in write-ups as a hub of cool, featured in magazines like Vogue, Forbes and even the New York Times. Travel and Leisure even so bold as to say that Pittsburgh is transforming from the “Steel City to Cool Town.” The buzz around Pittsburgh is even stirring nervous reminders from the much larger Philadelphia that it’s still relevant.
What has people buzzing about the city? Well, Google moved in several years ago, Uber’s autonomous taxis will soon service the city, and both Intel and GM are conducting research in the city, thanks to the quality of the robotics and technology research at Carnegie Mellon. The value of the city’s education complex can be seen in its demographics, as 33.0% of the city’s population holds a bachelor’s degree or higher, compared to the national average of 30.6%, per the Census Bureau’s 2015 ACS estimates.
The city’s largest park, a 660-acre parcel of land including urban forest, is also in the works, adding to the livability that has garnered so much attention for the city. Men’s Journal cited the more than $130 million of investment in the riverfronts on the Allegheny and Ohio as a draw to the city, not to mention the emergence of the tech sector in the city, which employs 23 percent of the area workforce.
Millennials are noticing, as Pew found, Pittsburgh to have the third-fastest growth in college graduates under 35 in the country between 2000 and 2014. The area still skews older, with a median age of 43 in the metro as opposed to the U.S. median of 37.8. However, the momentum is positive. It is particularly surprising that growth in that demographic of college graduates under 35 (of 53%) occurred while the city’s overall population declined in the same period by 9%. Maybe they caught wind of Brew: The Museum of Beer’s opening in 2018.
The chart below on net migration is important for Pittsburgh as it shows the first stretch of net positive migration to Pittsburgh after 30 years of net out-migration. Pittsburgh is expected to continue its current upward trend towards net positive migration, breaking out of the red in upcoming quarters.
The Pittsburgh Economy
It’s important to remember the lag in the data publication means that these net migration numbers are missing quarters where economic growth in Pittsburgh continued to outpace the national economy. The recent tendency for Pittsburgh to outperform the broader nation in terms of real gross metropolitan product growth furthers the attractiveness of the region.
It has been some time since Pittsburgh was dominated by heavy industries. Even though the concentration of manufacturing employment in the Pittsburgh metro has been lower than many of its Rust Belt counterparts for some time, the industry has continued to shrink in importance in terms of employment, in line with other cities in the region. The most dramatic growth sectors for employment in Pittsburgh have been Professional/Business Services and Education/Health Services – “eds and meds.”
The metro recorded net job losses, however, in 2nd quarter 2016. The goods-producing and government employment sectors have been a drag to total nonfarm employment in the region over the past year, and the service sector slipping into the red for the first time since 2013 brought job losses to their highest level in seven years. While these employment numbers are current, they do not appear to be part of any broader trend at this time.
In terms of credit quality, bankruptcies on both the corporate and personal fronts seem to be drifting upwards, but remain around the 50%-level of their recessionary peaks. Coming off of the cyclical bottom of bankruptcy filings isn’t always a negative indicator, and can be framed somewhat as people more willing to assume risk. The continuation of this trend however could signal more of these risks are not being compensated, and tightening economic opportunity.
The Pittsburgh apartment sector weathered the recession better than most other markets and continued to post revenue growth in the years after the downturn. As a result, Pittsburgh had one of the nation’s strongest apartment markets through 2011. That year, occupancy peaked at 98.6% and annual rent growth reached 6.9% — among the best performances nationally. Since then, however, the market has seen some backtracking, recording net move-outs throughout much of 2013 and 2014. In 2nd quarter 2016, occupancy in Pittsburgh landed at 95.4%, and rents grew just 1.6% year-over-year.
Backtracking appears due to normalization after the uncharacteristically strong performances through 2011. In turn, multifamily development appears to have crested in the Pittsburgh area. This is welcomed news, as supply has tended to outpace demand for this market since 2014.
Affordability of housing stock has been a challenge to multifamily growth in Pittsburgh. Marketwatch even found Pittsburgh among one of the best places to flip a house, due largely to the significant discount flippers are able to get off of the home’s fair market value. The shrinking population from so many decades translates into a real estate market with plenty of blight to deal with, and inconsistent home price gains. The demand trend appears to be favorable however, showing quarterly lately, while supply has (and should continue to) come down.
Pittsburgh will remain an attractive city due to its access to an educated workforce and affordable housing. Trend-setters like Google, Uber and advanced research from GM and Intel are encouraging for future development. Growing employment concentration in education and healthcare also makes for an economy less susceptible to business cycles. Pittsburgh will need to be watched closely, however, as a many of the metro’s metrics could be approaching inflection points. It should be remembered, however, that existing growth is not what attracted big brands to the city in the first place.