By Adrian Maties, Associate Editor
The 2016 Republican National Convention is expected to bring about 50,000 visitors to Cleveland next year, and provide an important boost to the local economy. But its effects can already be seen. Developers are currently working on several hospitality projects in the region, including a 600-room Hilton and 206-room Le Meridien, creating jobs and pushing up demand for rentals.
According to Marcus & Millichap’s 2015 Apartment Research Report for the Cleveland area, a resurgence in residential demand in the city’s downtown has resulted in an important amount of office-to-apartment conversions. The Halle Building, one of Cleveland’s oldest landmark buildings, will undergo such a transformation. K&D Management LLC, the project’s developer, purchased the property last year, from Forest City Enterprises Inc., for $20 million.
Apartment construction is expected to slow down this year, after reaching a peak in 2014, but it will still remain above the five-year average. Developers are expected to complete 880 apartments in 2015, down from the 1,100 units that were delivered last year, expanding the inventory by 0.5 percent.
The strong apartment demand will continue to push vacancies below 4 percent, in spite of the heightened construction of the past two years. Marcus & Millichap expects the Cleveland-area apartment vacancy to drop by 50 basis points this year, to 3.8 percent. This will cause rents to grow by 2.5 percent to $832 per month. Rents rose 2.1 percent last year.
As property performances steadily improve, investors seeking higher returns in secondary markets will turn their eyes toward Cleveland. And, because of the limited supply and the high investor demand, some operators of larger complexes might be tempted to list their assets. According to Marcus & Millichap data, properties located in Cleveland’s downtown and in University Circle will be the most sought after and also the most challenging to find.
Chart courtesy of Marcus & Millichap