A flight to quality: Since the start of the COVID-19 pandemic, this has been the biggest trend hitting Cleveland’s office market. And as more users flock to Class-A office space, developers are increasingly targeting Cleveland’s outdated Class-B and Class-C space for conversions, turning many of them into apartments.
This trend isn’t limited to Cleveland, either. Across the Midwest, office users are seeking out higher-quality space, leaving older buildings largely empty. Cities and developers are now working to turn these unloved offices into residential space, one more way to address the shortage of multifamily housing that most cities face.
In Cleveland, at least, this trend started long before the pandemic, according to the latest research from JLL. The pandemic, though, gave it a push.
According to JLL, more than 9.7 million square feet of office space has been converted or demolished in downtown Cleveland since 2007, with 90% redeveloped and just 10% demolished. These conversions have resulted in a 40% reduction of inventory in Cleveland’s downtown office market.
JLL reported that 65% of the office removed from the downtown Cleveland market since 2007 has been Class-C space, while 35% has been Class-B.
For a nice visual, picture Cleveland’s iconic Key Tower, the tallest building in Ohio. According to JLL, the conversion and demolition of more than 9.7 million square feet of office space is equal to nearly seven Key Towers.
What happens to converted office space? In Cleveland, according to JLL, most of it has been turned into apartments. JLL says that more than 7.8 million square feet of office space has been converted to residential use since 2007, a figure that accounts for 89% of all conversion activity.
Overall, more than 3,934 apartment units have been delivered in downtown Cleveland since 2007. Most of these units have been absorbed, though JLL reports that overall apartment occupancy has fallen from 97% in 2007 to 91% in 2022.
At the same time, developers have been adding new-construction multifamily buildings in downtown Detroit for the first time in decades. Examples include The Beacon, The Lumen and The City Club Apartments.
Downtown Cleveland has also seen five office-to-hotel conversions completed since 2007. These include The Kimpton, The Drury and The 9. The Fidelity Hotel is currently under construction while a W Hotel is planned at the Tower at Erieview.