HEARTLAND SNAPSHOT, FEBRUARY 2007

Cleveland Multifamily Market

The majority of development is occurring in downtown Cleveland and much of it is in the form of mixed-use projects. Zaremba is developing a mixed-use project at East 12th Street called The Avenue District, which will incorporate for-sale housing units with street-level retail and restaurant space. The Cleveland area is also experiencing a significant increase in the development of for-sale condominium properties. Condo conversion continues to be prevalent downtown, where some multifamily projects, constructed approximately 15 years ago, have been converted to condominiums as tax abatements restricting the properties from being sold have expired. A new grocery store in the Warehouse District and other storefront neighborhood amenities have also been developed to attract and retain tenants. The much anticipated Steelyard Commons project, scheduled to open this year, will also offer downtown residents access to discount and big box retailers such as Target and The Home Depot, as well as retail shops and restaurants previously located solely in suburban locations.

Upscale suburban developments such as Crocker Park in Westlake also continue to thrive and attract tenants seeking luxury housing with extensive amenities and convenience. The K&D Group Inc. has also assisted in the revitalization of Cleveland with the continued expansion of the Stonebridge Waterfront apartment and condominium community.  MRN Ltd. has added new life to the downtown area with The East Fourth Neighborhood, a mixed-use project offering numerous housing, dining and entertainment venues. Additionally, Gross Builders and Richland Development have helped to drive development by offering a variety of multifamily housing communities throughout the Northeast Ohio region. Pinnacle Condominiums is the first new construction condominium complex located in the Warehouse District.  Developed by Gus Georgalis, Pinnacle is a full-service, gated, high-rise community. The project’s 80 units offer high-end amenities and panoramic views of Lake Erie and the city.

Properties offering residents multiple amenities and new or improved units have the most solid occupancy rates, and can set above-market rents. Effective and asking rents increased in 2006, and owners should continue to achieve additional pricing power in 2007. Rental rates in the suburbs range from approximately $650 to more than $1,300, depending on the location and amenities. Downtown rents for a one-bedroom unit average $800 to $1,150, while two-bedroom units often rent in excess of $1,250. According to CB Richard Ellis’ latest statistics, the overall apartment vacancy rate in downtown Cleveland ranges from approximately 7 to 9 percent and looks to improve in the coming year.

In addition to the growing appeal of downtown living, some of the incentives for renters to buy homes have dissipated due to increased interest rates. Other potential buyers have been priced out by home prices or find they cannot afford their mortgages as adjustable rates climb. Improvements in the job market may also improve occupancy rates as fewer people seek roommates and more move from family homes. This should help apartment occupancy rates and continue to diminish the widespread offering of lucrative concessions by landlords.  Downtown Cleveland currently has more than 5,000 market rate housing units either existing or under construction and the number of downtown housing units has doubled in the past 5 years.  More than 9,000 people reside downtown and approximately a quarter of downtown residents are reverse commuters that work in the suburbs. 

— Vicki Maeder and Nicole Smeader are members of the investment property group and the private client group within CB Richard Ellis in Cleveland.



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