While vacancy in the Forest City has been falling steadily since 2009, mostly due to lack of new supply, a similar trend in unemployment has taken a bit longer to materialize. However, it appears progress is finally being made, as the metro area recently added over 10,000 jobs between the third quarters of 2011 and 2012—resulting in the largest net growth in employment in over a decade.
With September 2012 marking the fifth straight month of job creation in Cleveland, the local unemployment rate fell 60 basis points year-over-year to 7.1 percent—70 points lower than the national average. Many of the job gains have come out of the construction sector, as projects such as the Inner Belt Bridge and Horseshoe Casino Cleveland are well underway.
Furthermore, as the prices for single-family homes continue to drop year over year, home sales have followed suit. Sales of existing homes were down a whopping 16.1 percent in the third quarter of 2012 as compared to the same point in 2011, causing demand for multifamily units to rise considerably.
However, due to the already low vacancy rate of 3.9 percent (which has fallen dramatically from 6.9 percent since 2009), apartment leasing activity moderated overall in 2012 “due to the limited supply of new product available for lease,” as noted in Hendricks & Partners’ most recent quarterly report. Only 205 absorptions were reported in Q3 2012, down from 370 net move-ins at the same point in 2011.
The lack of new supply in Cleveland has caused a mild uptick in the number of permits issued during the last year, with 210 units approved on an annualized basis in September 2012. This is higher than the 170-unit average seen since the beginning of 2010, yet far lower than the pre-recession average of 600 units.
With such constraints on supply amidst rising demand, rents reached a new high of $759 per month in September—an increase of 2.2 percent from the previous year. According to Hendricks & Partners, such marks the eighth consecutive quarter of rising asking rents.
The metro’s most expensive submarket continues to be the downtown area, posting a remarkable 5.1 percent increase in asking rents—from $1,104 per month to $1,160 per month. The least valued submarket was the Lakewood/Brooklyn area, with average rents rising only modestly from $663 to $676. This area has one of the metro’s highest vacancy rates and is more oriented towards single-family.
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