Three years ago, apartment renters would flock to any new apartment building rising in Cleveland, filling the units as soon as the multifamily development opened its doors. Today? It might take more time for these buildings to fill. But Gary Cooper, senior vice president and principal with the Cleveland office of Colliers International, said that this doesn’t mean that the city’s apartment market is in decline. It just means it’s stabilizing.
Cooper is one of the speakers at REjournals’ and Midwest Real Estate News’ Fifth Annual Cleveland Commercial Real Estate Summit to be held June 27 at at Windows on the River. The event will feature the biggest names in Cleveland’s commercial real estate industry discussing everything from the city’s apartment market to its industrial, office and retail sectors.
Midwest Real Estate News spoke with Cooper in advance of this event about the state of Cleveland’s multifamily market, why it’s been so strong for so long and what the future holds. Here is some of what he had to say.
In general, how strong is the Cleveland apartment market today?
Gary Cooper: The last four or five years have been red hot, white hot, whatever term you want to use. In terms of pent-up demand, units coming online, absorption, it’s been hot. What we are seeing today, though, is that the market is still strong, but it is also normalizing. In 2015, 2016 and 2017, the apartments coming online had 60 or 90 units. Many of them were conversions with under 100 units. They were always fully occupied upon completion. There was just so much pent-up demand and the deals were smaller ones.
How has that changed today?
Cooper: Everyone is expecting every apartment building to be built and fully occupied upon completion still. But when 300-unit buildings come online, they are not fully occupied at completion. Then people start thinking that there must be weakness in the market. That’s not true. The market is still strong. We just have a normalizing market right now.
Are you still seeing new apartment projects coming online in the Cleveland market?
Cooper: Most of the construction now is focused in the CBD. You have two big high-rise projects, the high-rise Beacon in downtown on Euclid and The Lumen at Playhouse Square. Leasing has been brisk at both of these projects and probably ahead of schedule. This is encouraging for downtown Cleveland. But they are big projects and will not open full. They are just such big projects. There are quite a few new apartment units in the pipeline in Cleveland.
These projects might not be fully occupied at opening. But are you confident that they will fill up?
Cooper: I am bullish about these prospects for these projects, considering how much downtown Cleveland wants to grow. You need residential units to support that growth. It is projected that we need 6,000 new units in the downtown CBD to support the growth potential of what our downtown population can be. At the same time, the market is normalizing, and big projects will take 18 months to two years or so to fully occupy and stabilize, which is normal. We shouldn’t take that as a sign that the market has cooled off or won’t support what is happening here.
What gives you confidence in this market?
Cooper: From a transactional side, 2018 was a record year for Northeastern Ohio and Cleveland apartment sales. The most encouraging thing to me is that most of the buyer pool was not the usual suspects. When we have had a lot of apartment sales, it has traditionally been a lot of the same local groups who have bought the properties. What we are seeing today is a lot of capital from Toronto, Chicago and East Coast markets that has targeted Cleveland for cash flow and opportunities and made an investment here. We had never been on the radar screen of institutional or coastal buyers before. That has changed. Some of that is due to the growth we have experienced, some of the positive economic trends in Cleveland.
How strong is the downtown Cleveland market? Do people want to live in the center of the city?
Cooper: There is a broad-based push of people who want to live in downtown. It’s not just Millennials. It’s all age groups. The biggest knock on downtown is that there is no affordable competent. It is all luxury high-end housing. If you are not an executive, attorney, banker or doctor, how are you renting an apartment in downtown Cleveland? If you are just a back-office worker in one of the towers here, how can you afford to rent in downtown Cleveland? That is an issue that hopefully a couple projects will address somewhat. But much like everywhere else, the apartment market here has seen a big influx in Millennials. The biggest surprise to apartment owners, though, has been the number of Boomers and empty nesters who are renting, folks who are not typically renters, who have chosen to relocate downtown and be part of the mix.
Is the apartment market in Cleveland’s suburbs doing well, too?
Cooper: We’ve talked about the CBD and the new product here. But the typical ‘60s and ‘70s product out there in the burbs is doing very well, too. There is strong rent growth in the suburbs, strong occupancy. The entire apartment market here is doing very well. I’m extremely bullish on the apartment market in Northeast Ohio. The neighborhoods adjacent to downtown, places like Tremont, Detroit Shoreway and Battery Park, are all enjoying strong apartment markets today.
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