Burns & Scalo Real Estate hosted a brokers luncheon Tuesday and its president, Jim Scalo, was exceptionally upbeat about the next few years. Scalo characterized 2016-2017 as slow years for transactions and decisions because of uncertainty surrounding the election and the ensuing Trump administration. Citing the Tax Cuts and Jobs Act that was passed in late 2017, Scalo explained that he had seen a dramatic upswing in activity since the start of 2018, both in terms of leasing and interest. His forecast was for a strong year for corporate and technology users in 2018, followed by at least two more great years. With the rapid pace of change in Pittsburgh’s economy, Scalo was reluctant to look beyond 2020, but he made it clear that there was no reason to expect a slowdown in 2021 or beyond.

Burns & Scalo is currently working to develop a 150,000 sq. ft. Class A Riviera office building in the Oakland/Pittsburgh Technology Center riverfront. Construction is scheduled for later this year, although the proposed riverfront zoning changes are a potential drag on the project. Burns & Scalo also plans to start a spec office in Robinson at its Boardwalk site, as well as Beacon II at the Abele Business Park in South Fayette.

Brokers at the luncheon echoed the enthusiasm Scalo had. Industrial brokers were beaming about deals pending in the Wheeling-to-Washington corridor and the airport area. One broker talked about the space at Nova Place, which was once thought to be a white elephant on the North Side, becoming scarce. With rents in the high $20s/sq. ft., Nova Place has succeeded in re-branding itself as a tech hub in high demand.

In project news, Mistick Construction was selected for the 183-unit, $30 million Solana at Cranberry project. CMU selected Landau Building Co. for the $3.5 million Warner Hall renovation. PJ Dick has started construction on the $6-7 million renovation of the former Cadillac dealership at Craft Place and the Boulevard in Oakland into offices. The developer, Walnut Capital, is said to have a single user for the project. St. Vincent University finalized its list of contractors for its $14 million library project. Jendoco, Landau, Mascaro, Massaro, PJ Dick, and Poole Anderson will be asked to propose on the project.

The Pittsburgh Homebuilding Report released its year-end 2017 results for new construction in the six-county metropolitan Pittsburgh market. While the year unfolded mostly as forecast, there were a few noteworthy deviations.

Single-family housing construction was up compared to 2016 but the gains were in attached products, like townhomes and quads. Permits for attached homes jumped more than 25 percent to 1,035 units. Starts for single-family detached homes actually declined by 6.3 percent, to 1,971 homes under construction. In contrast to the national trend, permits for new apartments also increased last year. New apartment construction activity was expected to slow in 2017 but permits for new units increased by 11 percent, to 2,368 units.

Another trend that continued more strongly in 2017 was the migration to the city. Permits for new construction in Pittsburgh proper reached 1,714, or roughly one-third of the total construction for the entire metropolitan statistical area.

In another measure of the economy, job growth returned to Pittsburgh during 2017. Hiring grew by an average of 11,625 jobs monthly in 2017; however, that average is well below the current trend. Job creation increased steadily throughout the year, with the monthly average reaching 16,000 jobs in the fourth quarter. In fact, December’s job growth of 19,300 was the highest year-over-year in 2017. Although there have been later revisions that deflated the preliminary jobs numbers in several of the most recent years, the consistent strength of employment gains in 2017 suggests that the trend of flat employment changed significantly last year.

Project news is light at this time of year but the hospital market continues to expand. Rycon Construction was selected as CM for the first of the AHN neighborhood hospitals in Greensburg. Turner Construction is bidding early packages and expects to release the main specialty contractors bids in mid-February for the $90 million UMPC Hamot tower in Erie. UPMC will be interviewing a handful of architects for its $700 million Transplant and Heart Hospital in Oakland (along with the Hillman/Shadyside expansion) next week, with RFP’s for construction management to follow within the month.

This morning Amazon announced the 20 cities that had made the first cut down from the 238 submissions. Read one local newspaper story about the news. There was a lot of excitement, as you might expect, about the announcement but it’s worth remembering that there are 19 other cities still in the running, including every city handicapped to have had an advantage over Pittsburgh from the start.

The news reminded me of a comment a gas industry executive made during the research for a recent BreakingGround article. He was grousing about all the press for the Amazon HQ2 bid and scoffed at the idea of 50,000 added jobs over the next 10-15 years. By the time the natural gas and chemical industry built out, he said, there would be 100,000 new jobs added in that sector.

That executive might have been exaggerating a little but it’s becoming clearer that the industrial sector is the big reason we’re seeing tight labor conditions ahead of what will be a bigger boom in the next two or three years. With most of the research for 2017 complete, we’ve tracked $4.37 billion in commercial/non-residential contracting. Some $2.37 billion of that total was in the industrial market. While there were a few big commercial warehouses in that number, the lion’s share of the industrial starts came from manufacturing, processing and power generation. This isn’t a one-year phenomenon. The industrial total for 2016 was $1.85 billion; and in 2015, it was $770 million. Even the relatively small total in 2014 – $492 million – dwarfs the total of any other sector during those four years.

There are a number of the mega projects – like Shell or the combined-cycle power plants – that have garnered headlines and make up big chunks of the dollars spent, but there has also been a steady stream of smaller, regionally-focused projects started. Within the past couple of months, for example, Al. Neyer started a 75,000 square foot addition to Knepper Press in Clinton Commerce Park. Hallstrom Construction is working on a 180,000 square foot addition to the New Stanton warehouse for DeLallo Foods.  These are local companies making stuff and doing stuff here. These are project that add to the employment base too.

Think back to the P.R. of the gas industry when the Marcellus Shale play started ten years ago. The payoff, they said, would be in the boom in manufacturing that would follow the exploration. This reindustrialization is starting to become bricks and mortar (or concrete and steel). Along with the construction and jobs, comes a fundamental change in the way business decisions are made. Manufacturers think in terms of the return on their assets. An asset-based economy tends to be focused on long-term trends instead of the next quarter’s results. That usually leads to better decisions for the health of the regional economy. You can read an article on the subject in the Jan/Feb BreakingGround (it’s on p. 52).

What’s going on in the technology transfer for robotics, information technology, AI and big data is an incredible opportunity for transformation of Pittsburgh’s economy. There’s an equally transformative reindustrialization trend. In the race to see which sector takes the economy higher, the winner is Pittsburgh.