The local commercial real estate market continues to prosper and grow. Vacancies, on the whole, are generally down and new construction is ever expanding. Across the region deals are getting done. Leading the charge in new development is the hospitality industry which is largely energized by the need for greater capacity in order to handle demand from the upcoming Republican National Convention (RNC). The term “hotel mania” aptly describes the surge in new and renovated hotels in and around the downtown area. In 2016, we can expect to see all of those hotels coming online before the start of the Convention in July.
Hosting such a landmark event is good news, especially in the short-term. Cleveland and, in particular, the downtown area, previously had a shortage of hotel rooms which restricted our region’s ability to attract major events. Now we’ll have plenty. The long-term challenge will fall on our economic development and commerce organizations to attract sufficient events and crowds to ensure that all these new and revamped hotels maintain high occupancy rates.
So what else can we expect in 2016 beyond hotel development? Lots of other development and reconstruction are either focused on or are being forced to adjust as a result of the RNC. Preparations for and activities surrounding the RNC will likely dominate the headlines from both a business and real estate perspective at least through July.
The first half of the year will be characterized by a huge surge in construction as developers and landlords frantically work to complete projects to the Convention. In June, however, all construction work must halt in accordance with a City-imposed construction moratorium prior to and during the Convention. Between security concerns and the desire to provide an aesthetically pleasing view of the city showcasing Cleveland in a positive way for the thousands of delegates, media and outsiders that will be descending on our city, all cranes and exterior scaffolding will need to be removed prior to the RNC. Additionally, during the moratorium period, no construction materials can be transported in or out of downtown.
For downtown projects that are not directly related to the RNC, their start will likely be delayed until after the RNC has finished. Projects involving only interior work or buildouts will not be affected by the moratorium.
As to notable specific projects, one major milestone for downtown Cleveland will be the reopening of the Schofield Building at East Ninth and Euclid, that has been shrouded in scaffolding and other construction equipment for longer than many people can remember. Located at one of the busiest corners in downtown Cleveland’s business district, the building is expected to be renovated in time for the RNC. The Schofield reopening will also mark the debut of an attractive new hotel brand – The Kimpton – to the Cleveland area.
Just beyond the central business district, the Flats East Bank project continues to grow and expand its development mix, and slightly farther out, One University Circle is moving forward with anticipated construction throughout much of 2016.
The building boom that characterized Cleveland even before 2015 (but which became much more noticeable in the past 12 months) will also be reflected by a resurgence in retail activity, a direct result of the ever increasing downtown residential population. New retail stores have contracted to come downtown to give rise to a rebirth of street-level upscale retail. Heinen’s already opened with great fanfare in early 2015, Metro Home opened mid-year near E.9th and Superior, and Geiger’s opened on Euclid Avenue, just in time for the holiday shopping season. Beyond the Cleveland city limits, to the west, Crocker Park has added a hotel and is expanding its retail space and, to the east, development of the Pinecrest project near I-271 and Harvard is underway.
Another major factor affecting activity in 2016 will be interest rates. With the Federal Reserve having just increased its benchmark interest rate by a quarter point, there is an expectation that rates will continue to rise throughout the year. A rising interest rate environment will likely push investors and developers to refinance existing debt sooner rather than later.
The new year is shaping up to be exciting and prosperous for Northeast Ohio and, especially, for Cleveland. Our real estate market appears to be ahead of the national trend, largely as a result of the impact of the RNC. Moving past the time of the RNC, however, the future is a bit less certain and only time will tell which projects will continue to move forward. From a legal perspective, the overlying theme is that of optimism but a heads up to proceed responsibly since nothing this good lasts forever.
Contact: Geoffrey S. Goss