Pittsburgh – Hot Spot for Future Opportunity


You can’t dispute the data; this city is a hot spot for opportunity and growth.


Dubbed recently as a city “living in the future,” Pittsburgh is a market targeted for growth and opportunity in the hotel industry. With $6.1 billion invested into its downtown redevelopment since 2007, Pittsburgh has turned itself into a development pad for business and real-estate growth alike. Professional sports venues, a new convention center and a new casino have all made their way into the public eye, but there’s a lot more happening that should be of interest to hoteliers.

For instance, the Marcellus Shale, with an abundance of natural gas, has been significantly contributing to the region’s economy since 2007. And in 2016, Shell Chemical Appalachia announced its decision to build a $6 billion ethane cracker plant in Beaver County. The plant is expected to enhance the natural gas operations for the region, add 8,000 to 12,000 temporary jobs during its construction from 2018 to 2021 and more than 7,000 permanent jobs to the economy from 2022 onward. Most importantly for those in the hotel industry, this plant is expected to provide a boom in room night demand for Pittsburgh’s west/airport submarket beginning in 2018.

The discovery of natural gas has not been the only major economic game changer in Pittsburgh. The market’s economic upswing was further intensified in 2014 with the strategic partnership between Carnegie Mellon University and Uber that made Pittsburgh the technology hub for the self-driving car industry. This $5 billion investment into Uber’s Advanced Technology Center (ATG) has spurred further economic growth with start-up IT companies flocking to the city, and global technology centers, such as the recently completed $100 million Nova Place, popping up throughout the central business district. Additionally, Ford Motor Company announced in 2017 its $1 billion investment into opening the headquarters of Argo Al in Pittsburgh to begin competing in the self-driving car industry.

With all the slated economic growth, the Pittsburgh International Airport announced in September 2017 its $1.1 billion modernization plan to enhance the facility. Not only will the airport expansion aid in increasing Pittsburgh’s nearly 14 million annual visitors, it will also lend a hand in increasing manufacturing investment – such as the $1.3 billion venture announced in 2017 by Allegheny Technologies Inc. for titanium products. Pittsburgh has also been shortlisted by Amazon for its new $5 billion headquarters that will be announced in 2018.

STR data shows the hotel market in the Pittsburgh MSA outperforming the state, with an average five-year occupancy level (2012–16) of 64.7 percent compared with the state-level of 61.1 percent. Additionally, the Pittsburgh MSA has shown an average 9.3 percent premium in revenue per available room (RevPAR) over the state during the span.

On a county basis, Washington County, referred to as “the Energy Capital of the Northeast,” recorded the highest five-year average occupancy performance at 69.4 percent, followed by Allegheny and Butler counties coming in at 66 percent. By submarket, the CBD recorded the highest average five-year occupancy performance of 68.4 percent, with the Luxury and Upper Upscale classes performing at 67.1 percent and the Upscale and Upper Midscale classes at 70.4 percent. The north submarket had the second highest occupancy at 64.8 percent, followed by the west/airport submarket at 64.0 percent. The Luxury and Upper Upscale classes in the west/airport submarket outperformed all product classes by location, with an average occupancy performance of 77.6 percent from 2012 to 2016.

STR’s August 2017 year-to-date data shows the south and west/airport submarkets up in occupancy performance as demand generated from the Marcellus Shale begins to rebound from suppressed 2015 and 2016 levels. Compared with the same period in 2016, the south submarket is up 7 percent in occupancy (Washington County up 13.9 percent), with a 20.7-percent increase recorded in the Midscale and Economy class. The west/airport submarket is up 1.2 percent (Beaver County up 2.3 percent), with a 1.3 percent increase recorded in the Upscale and Upper Midscale class. Rates are down across all four submarkets corresponding with the suppressed occupancy performance; however, 2016 and YTD 2017 were the only periods with recorded rate decline over the last five years, and rates are forecast to recover in 2018.

The Pittsburgh area also has experienced a considerable increase in new supply over the last decade. New supply in Washington County has increased 110 percent since 2007 with the introduction of the natural gas industry. The Pittsburgh CBD experienced a 55.8 percent increase in hotel supply since 2010 with the renaissance of the downtown, and Allegheny County’s supply was up 35.5 percent. The west submarket is targeted next for new supply growth, with the expected demand rise from the Shell Plant and Pittsburgh International Airport projects. There are currently 67 hotels and 7,623 rooms in this submarket, with only a 24.7-percent increase in new supply since 2010. Three hotels are under construction with 378 rooms anticipated to enter the market in the near term.

Pittsburgh only has two Luxury class hotels within all submarkets – the 185-room Fairmont Pittsburgh (opened 2010) and the 22-room Mansions On 5th (opened 2011). No new Luxury class supply is planned. In the CBD, there are 12 Upper Upscale class properties (totaling 3,998 rooms) with another two under construction (totaling 279 rooms).

Two Independent, boutique hotels (totaling 224 rooms) are also under construction in the CBD. From 2012 to 2015, occupancy ranged from 67.5 percent to 70.3 percent before dipping in 2016; occupancy is expected to quickly rebound as demand is induced into the market from the slated economic initiatives. The CBD holds the economic growth related to the IT sector, as well as the new $400 million PNC tower, 10.4 million square feet of LEED/Energy Star-certified office space, and a $63 million redevelopment plan for the Strip District. Pittsburgh still lacks an anchor hotel for the David L. Lawrence Convention Center, with an adjacent site readily available.

With a multitude of billion dollar investments and a major airport modernization plan on the horizon, STR forecasts an increase in room night demand, making Pittsburgh a hot spot for future opportunity and growth in the hotel sector.    ■

Laura Kalcevic is part of the STR Custom Forecast Team and has extensive global experience in the hospitality industry. She’s a graduate from the University of Queensland’s School of Tourism and Adjunct Professor at the New York University’s Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management. Laura is also a state-certified appraiser, in which she’s performed hotel appraisals and consulting work throughout the U.S., Mexico, Canada, Central America, and the Caribbean. Laura applies her practical and academic experience to analyze hotel trends and forecast future performance.

Photo credit: Konstantin L/Shutterstock.com


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