Why Cleveland’s Thriving Downtown Apartment Market is on Solid Footing
It’s no longer a secret. Residential housing is one of the biggest stories to hit Cleveland’s central business district in over a quarter century. The only thing more impressive than the long list of residential projects that have been completed over the last five years is an even longer list of residential projects that are either planned or under construction.
Despite this prolonged surge in activity, several questions remain, with most centered around the viability and sustainability of this sector. But before we take a look forward, let’s first take a look back.
Downtown Cleveland has added approximately 1,700 new rental units over the past five years, with the total residential rental inventory standing at nearly 5,900 units.
Last year alone saw 573 new units come on line as the direct result of converting nearly 500,000 square feet of former commercial and office space to residential.
But despite this additional inventory, the occupancy rate has increased nearly 2 percent over the last five years, ending 2015 at 97.5 percent.
Population surge in CBD
The downtown area contains approximately 14,000 residents, a 79 percent increase since 2000, according to a newly released report from the Downtown Cleveland Alliance. The average rent per month for a one-
bedroom apartment has increased nearly 30 percent since 2011.
Peering a little deeper into this report, a few demographic trends stand out. The fastest growing group by age is 5- to 9-year-olds. The population of that group has soared by nearly 200 percent over the last five years. The second fastest growing group is children under 5 years of age. More specifically, the population of that group grew by nearly 100 percent during the same period.
Households with incomes between $150,000 and $200,000 grew by over 300 percent during the last five years, while those with incomes in excess of $200,000 increased by 182 percent.
A few clear trends are emerging as a result of these market nuances. The most obvious one is that there is a large pipeline of projects either planned or already under construction to help meet the continued renter demand.
Developments to watch
Construction is currently underway on nearly 1,000 units that will come on line over the next 12 months. An additional 2,300 units are slated for delivery during 2017 and 2018.
Three noteworthy projects account for a significant portion of the units slated for delivery over the next few years:
• The 925 Building is a $280 million renovation of the former Huntington Building. Built in 1924, the 21-story tower located on Euclid Avenue was once home to Huntington National Bank. When completed, the project undertaken by Hudson Holdings of Florida will include 673 apartments, along with 279 hotel rooms, 150,000 square feet of office space and 43,000 square feet of retail space.
According to The Plain Dealer, Cleveland’s daily newspaper, the building contains 1.3 million square feet of “near-empty offices over an ornate bank lobby and hushed retail arcades.” The property was awarded $25 million in state tax credits last December, and construction is scheduled to begin by the end of the second quarter.
• Weston Citymark is a $400 million development that will be built in four phases by the Asher Family. The six-acre site is located just west of Public Square, a four-block central plaza that is considered the center of downtown Cleveland. Similar to most new downtown planned developments, construction is expected to begin by late summer, working around the Republican National Convention. The original plans for the 3 million-square-foot development included 1,200 residential units with a rooftop bar, deck and pool, along with 100,000 square feet of retail space, green space and a covered parking garage. Phase I, scheduled to come on line by mid-2017, will boast 352 units and 22,000 square feet of retail.
• And nuCLEus is another $400 million new development that will include 500 housing units, 250,000 square feet of office space and 150,000 square feet of retail space. Cleveland-based developer Stark Enterprises, along with J-Dek Investments, acquired the three-acre site in late 2014.
Cleveland-based Benesch, a law firm, will serve as the lead tenant to help anchor the proposed 54-story, mixed-use tower. Unlike the other major projects, a portion of the housing units at nuCLEus are expected to be for-sale units. Construction is expected to begin late this year.
While some may be skeptical that Cleveland’s downtown market can absorb all of this pending supply, some experts think otherwise. They are quick to point out that the downtown area currently houses less than 1 percent of the total population in the metro area. This is much lower than the 2 percent to 3 percent of the population that currently live in comparable Midwestern downtowns, such as Milwaukee or Indianapolis.
New demographic target
A second trend is a strategic shift by developers in who they are targeting as renters. Early units were often built to target Millennials and Baby Boomers, and for good reason. Downtown Cleveland has seen a 77 percent increase in the former and a 97 percent increase in the latter over 15 years.
But as the market has matured, developers are anticipating the next phase to be characterized by the growth in households with young children. As a result, the unit composition will be tilted toward larger two- and three-bedroom configurations and away from efficiency and one-bedroom designs.
Equally important is the emergence of new amenities aimed at families, such as providing areas to exercise pets, designing large gathering/family room areas and offering various storage options.
Schools act as catalyst
A third trend is an upswing in activity among educational institutions within the downtown area. Campus International School was founded in 2010 as a partnership between the Cleveland Metropolitan School District and Cleveland State University. It is currently housed on the campus of Cleveland State and accommodates over 500 students in grades K-7.
However, construction is underway at the Cleveland State University campus on a $24.2 million project that will include a new 92,000-square-foot school that can house nearly 750 students. It is expected to be ready for the 2017-2018 school year.
Another recent development is the MC2 STEM High School. Instead of having a permanent location, it rotates students through various locations around the city throughout their high school years.
Ninth-grade students meet and take classes at the Great Lakes Science Center, 10th grade students meet at GE Lighting’s corporate headquarters located just east of downtown and 11th- and 12th-grade students take courses at Cleveland State University. The school’s enrollment is over 400 students.
Cleveland’s downtown residential market will never have the depth and breadth of Chicago or Boston. But with the recent addition of retail, service and educational components to the core downtown, it’s clear that the downtown housing market is moving toward a sustainable trend.
— By Alec Pacella, CCIM, Managing Partner, Senior Vice President, NAI Daus. This article originally appeared in the May 2016 issue of Heartland Real Estate Business.