Michael Connor, Market Leader, Hanna Commercial Real Estate
As an evolving market, Pittsburgh offers the talent, higher education network, and real estate expertise for companies wanting to grow and develop. In an interview with Invest:, Hanna Commercial Real Estate Market Leader, Michael Connor, highlighted how different asset classes are evolving in a post-COVID market. “Overall, the last five years have been insane in different ways. The market dynamics change seemingly every day, especially as consumer demand changes industrial real estate and last-mile distribution, and changes in the housing market lead to robust multifamily development, for example. All of these factors intersect and create new opportunities,” Connor said.
What have been among the most significant changes for your operations in the past 12 months?
First, our new branding for Hanna Commercial Real Estate has been a significant change. We are under the same umbrella but intentionally different. We have a 13-office platform across the Northeast and Midwest.
Overall, the last five years have been insane in different ways. The market dynamics change seemingly every day, especially as consumer demand changes industrial real estate, last-mile distribution, and multifamily development, for example. All of these factors interchange and create new opportunities, and demand has been remarkable to witness over the past five years. Within the past 12 months, the general business community and the market were holding their breath to see how the latest election cycle was going to unfold. We saw companies and investors take a pause, especially after several instances of rate hikes throughout 2023, which stagnated demand and appetite for commercial real estate throughout 2024, especially with the election looming.
After the election, there was a spur of interest and robust demand based on speculation that would come with the new administration. Tariffs, candidly, threw everyone for a loop. It affected companies in a myriad of ways that we all had to react to, and many decisions were put on pause yet again. The industry was paralyzed because no one was making decisions due to not having all of the information. Whenever the pause button is hit, our industry changes dramatically. It just goes quiet.
Since April, demand has rebounded in a pretty significant way. Similarly to COVID, people eventually get comfortable with a plan based on the best information they have at any given moment. As more information became available, people adjusted and pivoted on their strategies, but continued moving forward. The past 12 months have been unique, but at the same time, more of the same. We are all reacting the best way we can while we navigate all of this.
In the midst of the market shifts, what factors are shaping client priorities?
We are a full-service firm. We do industrial, land, office, investment real estate and we have a huge retail team. We see a lot of these transactions and get a good sample of how practitioners in the market are trying to make deals work. Here in Pittsburgh in the past 12 months, we had a lot of speculative industrial development as a response to robust demand, whichwas absorbed quickly at the height of the industrial lease up. We (Pittsburgh) were beneficiaries of that wave. Values and rents went up. As interest rates climbed and those dynamics took hold, demand cooled off significantly. Pittsburgh is not as robust an industrial market as we would love it to be. However, we are starting to see that rebound as the tariffs and interest rate conversation is bending more in the favor of the companies; they’re starting to see market conditions that they can rely on.
A completely different narrative is the office dynamic and how companies are managing the return to office (“RTO”). RTO has steadily creeped up over a longer period of time, but we are starting to see mandatory return to office. General activity has risen dramatically in line with that trend. It is possible that we do not know the true impact of the COVID pandemic yet, because there is a confluence of cautiously-optimistic tenant demand on the uptick while a lot of these loans are maturing for the office towers that were purchased within the last five to seven years. The maturity dates for the loans are rolling. We are starting to see that wave of office buildings that are going to be sold for the debt, recast, and with a new investment team coming in and creating a better story out of these assets. We are starting to see that reset happen on the office side.
The retail world is always changing. The big box retail is not nearly as active as previous years. There have been massive store closures and corporate restructuring. Service and experiential retail is huge and QSR demand has been robust. However, it has been a transformative shift in terms of what is considered retail, what those users are, and what consumers really want. All of that directly relates to where investor demand is focused because the investment will try to follow the strongest, and most sound income-producing opportunities are.
What market sectors are shaping demand across the Pittsburgh market?
Historically, Pittsburgh has gone through several iterations and transformed itself throughout the decades. We are fortunate to have the University of Pittsburgh from which UPMC originated, which is the largest employer in the Commonwealth of PA. Today, UPMC is still a global powerhouse in the healthcare and medical space. We have a robust life sciences demand in terms resulting in the formulation of new companies, which are a direct product of the efforts by the University of Pittsburgh. We have seen many different companies start in the region but also migrate to Pittsburgh from the West Coast because they recognize the strength of the local talent pool and have decided to have a presence in the market as a result of that. Pittsburgh did a great job at being able to deliver quality office, manufacturing, and assembly development projects that appropriately met the quality and standards that these companies needed to accomplish their great work. New projects resulted in record-setting rents, which were still considered a discount compared to other markets on the West Coast. Pittsburgh is the perfect confluence of talent and positive market dynamics (affordable housing, advantages salary ranges, etc.)
There is also a narrative around Pittsburgh to become a world-renowned epicenter for everything tied to AI. There is a great push to accommodate that through public and private investments; however, it is all based on the talent of the institutions that we already have.
What key opportunities are you keeping a close eye on?
The needs of companies are changing. We are focusing on understanding every company’s pressure points and where they need to execute, and in what fashion or method they need to execute given the current restraints in the marketplace. I know that many of the local institutions in the community would love to foster expansion, growth, build new buildings, and accommodate new divisions, which is incredibly challenging when there is a slash in NIH funding from the Federal Government. When that budget (any budget, really) gets slashed things get pushed and reprioritized. The third-party institutions that want to partner with the universities also have their own goals and growth strategies. As such, we are trying to figure out what is most important to our clients, supporting their overall strategy, of which real estate is a small part but can make a big impact. We aim to be receptive to what companies think their strategy is and then outline how this aligns with a real estate strategy.
What are your priorities and goals for the next few years?
I don’t think that we have enough people in our industry. As a real estate community, we could have done a better job at training and bringing in newer talent to be able to support the quality of service that these companies need in a sustainable way. One of my company goals is growth and training. There is opportunity in the market; however, our clients need top quality service. If you have the best people curating real estate strategies it has to be done by the best people that we have to offer on that front. Beyond that, and in terms of market dynamics, I’d like to see an alignment between business savvy and acumen but also strategic policy making that aligns with the general health and growth of the region, and hopefully having a hand in helping Pittsburgh take more steps in a positive direction.
