When using the group of location (WRH activty code), you can assign a default warehouse for sales and production allocation. Hence without changing manually the allocation criterial, this should limit the allocation to all locations linked to the warehouse.

Yet all the stock across all warehouses is considered as available by the MRP.

So by creating 2 warehouses: AVAIL and NOSAL you can assign the location that would be non-sellable to NOSAL and all other locations to AVAIL. Then assign AVAIL as default location for everything.

Thru some additional investigation, I discovered a location type of SubContract. Would just designating a location as a SC keep it out of the pick path? Would it cause any other issues?

I have never tried this, but are you sure you cannot allocate stock from a work order / sales order?