If any city has had trouble shedding its old image, it's Pittsburgh. While its reputation for smog and smokestacks lingers, the metropolitan area has quietly entered the 21st century with a diversified economy and a well-educated population.

“Pittsburgh has got a bad rap,” says Joe Cosenza, chairman of Inland Real Estate Acquisitions Inc. “The old steel places are now gone. They've been redeveloped, and the neighboring areas are pleasant.”

In fact, two area steel mills have been converted to shopping centers: The Soffer Organization's SouthSide Works, and Inland's retail portion of mixed-use development, the Waterfront in Homestead, an old industrial town adjacent to Pittsburgh. Meanwhile, CBL & Associates Properties Inc. has selected the area for its first open-air addition to a mall.

Like its hilly terrain, the region's retail landscape is uneven. While the metropolitan area, with a population of 2.3 million, continues to expand outward with new homes and newer retail, the downtown section remains distressed. (See story on page 43.)

“What you are continuing to see in this market is a strengthening in the outlying areas and a weakening in the downtown,” says Jim Kelly, vice president of retail development for Grubb & Ellis.

While retail vacancy rates are 7 percent downtown, they are in the 2 percent to 5 percent range across the Allegheny and Monongahela rivers.

Cross the Allegheny to the North Shore, for example. There, Continental Real Estate Cos. is developing 14 acres between the city's two new stadiums, PNC Park and Heinz Field. The new fields have replaced Three Rivers Stadium, which was demolished in early 2001 after much criticism of the design and location. “Three Rivers Stadium didn't work, because they ended up with a breadbasket in a sea of asphalt,” says Ed Shriver, a principal with architectural and urban design firm Strada.

This time the two stadiums bookend an urban neighborhood with 700,000 square feet of office space, 300 to 400 residential units and about 250,000 square feet of retail. So far, two office buildings, Equitable Gas and Del Monte Foods, both designed by Strada, have been built with 70,000 square feet of retail on the ground floor. Rumors are that Panera's Bread, Starbucks and UPS will sign on as tenants.

“The intent was to not just extend the office building component, but to make it a real urban area,” says Shriver, “So it needs to have retail on the first floor and it also needs to have office and residential above it.”

Cross the Monongahela River and you will find SouthSide Works, a lifestyle center which local builder Soffer opened late last year. It includes 330,000 square feet of retail and will also include 700,000 square feet of office space. The center has lured retailers new to the area, including Sur La Table, Cole Haan, Urban Outfitters and REI.

The Waterfront Development has revitalized the site of the old Homestead Steel Works. With the area's only Filene's and Dave & Buster's, the 256-acre development includes 400 apartments. It was originally developed by Continental, but Inland bought nearly 750,000 square feet of retail in late 2003 for $123.5 million.

Simon Property Group dominates the regional mall landscape with three malls, including the fortress Ross Park Mall in Pittsburgh itself. However, CBL has recently made inroads. It owns the 1-million-square-foot Westmoreland Mall in nearby Greensburg, and last year the company purchased the Monroeville Mall in Monroeville, Pa., from Turnberry Associates for $231.2 million.

“We thought there was an opportunity to create some more value through aggressive leasing and management of the center,” says Stephen Lebovitz, CBL president. CBL hopes to push the $350 per square foot sales average to $400 by upgrading the mall and completing an 80,000-square-foot open-air component known as the District. While completion is expected this summer, the Barnes & Noble anchor is already open.

The District is also slated to include a Wolfgang Puck Express, Coldwater Creek and Chico's. “We view the area as a stable market where the nature of the employer base has really changed in the past 10 to 15 years,” says Lebovitz.

The addition should help Monroeville compete with the Mills Corp.'s newest creation: the 1.1-million-square-foot Galleria at Pittsburgh Mills set to open in Frazier Township July 14. About 70 percent leased, the mall will feature typical Mills entertainment stalwarts such as virtual NASCAR racing, PBS Kids Neighborhood and Lucky Strike bowling lanes. Atypical to Mills however, the Galleria will have traditional anchors like Kaufmann's, JCPenney and the region's first Sears Grand. The project also will have an adjacent shopping center, dubbed the Village at Pittsburgh Mills, which will feature several big boxes.

This northeastern corner of Allegheny County, formerly under-retailed, is also expected to have another center: Woodmont Realty Associates of Fort Worth, Texas, plans the $124 million Deer Creek Crossing. After several years of contentious debate with local environmentalists, the county finally approved the 950,000-square-foot center. Although some say the two centers are compatible, others feel they will be directly competing with each other. With construction on Deer Creek not expected to start for several months, so far Mills has the upper hand. A representative from Woodmont was unavailable for comment at press time.

“We don't know who's going to anchor it, because it's so close to Mills,” says Michael Westover, vice president of retail development for Grubb & Ellis. “You have to wonder if they [the retailers] are going to go there or to Mills.”

Making the Mills project even more appealing is the fact that Wal-Mart and Sam's Club have signed on as freestanding stores next door. The metropolitan area has a proven affinity for Wal-Mart and Home Depot. Spaced about four or five miles apart in the market, Wal-Marts average about $600 to $700 a square foot, according to Grubb & Ellis.

Metropolitan Pittsburgh represents a growth opportunity for retailers, says Shriver. “There might be too many drugstores here and not enough Gap stores, and so I think there are some very interesting retail opportunities available.”

Downtown Doldrums Continue

Retail's future in the inner-city remains uncertain.

Downtown Pittsburgh has suffered as retail moved beyond the Allegheny and Monongahela rivers. In less than three decades, the city's population has shrunk to 327,000 people from 520,000, forcing the closure of inner-city stores.

“The retail activity in downtown Pittsburgh has been deteriorating,” says Ed Shriver, a principal with architectural and urban design firm Strada.

Where downtown Pittsburgh was once home to four department stores, only two remain. In 2003, May Department Stores closed its Lord & Taylor store as part of a corporate restructuring. Perhaps even more damaging was Federated's decision last year to close the 250,000-square-foot Lazarus-Macy's department store, which had been open only six years and after receiving $54 million in public subsidies.

Saks Fifth Avenue and Kaufmann's department stores remain. “The fact is that we still have two in the downtown,” says Russ Jenkins, an associate of the Urban Redevelopment Authority of Pittsburgh's Business Development Center, trying to find something positive in the consolidation. “Compare that to any other city our size.”

Rumors abound, however, that sales at the two remaining outlets are struggling, and it's still uncertain how the Federated-May merger will affect the remaining Kaufmann's. Attempts to resuscitate the city's traditional retail corridor, known as Fifth and Forbes, have also failed. Initially, Kravco Co. was set to create a revival plan for the downtown. Then in late 2003, Simon bought Kravco and phased out its Downtown Works Division, says Jenkins. “The concept has evolved from a major retail project in the central business district to where now everyone says let's build residential and have people move downtown,” he says.

About 350 multifamily units are being developed downtown, catering to empty nesters and young singles. Lincoln Properties is developing a $36 million 151-unit apartment building in the area. “There is a real desire to resuscitate downtown on the weekends and weeknights,” says Kelly.

Jenkins' optimism could still pay off downtown. J.J. Gumberg Co. reportedly has bought the abandoned Lord & Taylor store for a bargain $2.5 million to $3 million, hoping to convert it into a Target. Also, local developer Millcraft Industries is negotiating to buy the Lazarus building and develop a mixed-use project with retail on the ground floor and office space or a hotel above. Company officials would not comment.
DK

Market Profile/Metro Pittsburgh

DEMOGRAPHIC OVERVIEW

  • City population 2003: 327,628
  • Estimated population 2008: 319,541
  • Total metro population 2003: 2,338,671
  • City's median household income 2003: $33,472
  • Estimated household income 2008: $42,284
  • Entire area retail square footage: 52 million
  • Vacancy rates 2004-5: 7 percent
  • Average rents for strip centers: $17-$19
  • Average rents for power centers: low to high $20s

Sources: U.S. Census Bureau, Grubb & Ellis