There's been a lot of change in the Greater Cleveland real estate landscape over the past few years, largely driven by the reaction of businesses and people to the pandemic. That's created challenges, but the region has unique strengths that could position it to overcome them, in some cases quicker than other places.
Kicking off the recent Cleveland Smart Business Dealmakers Conference with a roundtable discussing the drivers of economic development in Northeast Ohio, Howard Hanna Real Estate Services President Howard W. "Hoby" Hanna, IV, says area developers and organizations do well encouraging growth in the city, and that's unique.
"In some cities, I don't see as much collaboration and cooperation," Hanna says. "I think that we need to encourage those hot markets, we need to encourage developers, whether it's — I know we're avoiding abatement right now — but whether it's abatement or other stimulus, whether it's public and private sector to agree to say, What could be that next Tremont or Ohio City? How does business work together with the public sector to design that and create momentum in different neighborhoods?"
Downtown Cleveland Alliance President and CEO Michael Deemer says the challenges facing downtown right now — rising interest rates, inflation, construction costs — are concerning. Downtown had momentum just before the pandemic started on housing, drawing employers and jobs back into downtown, and creating a visitor destination. But he sees advantages for downtown that could help it overcome these challenges at a faster pace than its peer cities.
"In some ways we're very well positioned because there are other cities and downtown's that are trying to figure out how to do adaptive reuse. We've that got down pat," Deemer says. "We have some inventory — we could use more — but our policy choices over the next 12 to 18 months are going to have an important impact on the direction and level of development that we see in downtown, in particular."
Jeff Bechtel, Cleveland Region President of First National Bank, says attracting people downtown requires being intentional. He says he and a group recently met with the city's mayor to talk about how to get people downtown.
"We have to make it a destination," he says. "We have to make it interesting. We have to come up with things to do again. It was a very encouraging meeting. Hopefully that all feeds to the activity down here."
Another factor affecting the area's real estate is interest rates. From a developing standpoint, K&D CEO Doug Price says it's a challenging environment.
"You've got interest rate that are up a point, probably moving up two points," he says. "We've got construction costs that are up 20 percent over the last two years, those are huge numbers, we have much less available buildings to rehab — in fact they're almost gone."
Some existing projects, he says, may have stalled largely because the numbers just don't work.
"So, I think that we're beginning a challenging period over the next couple of years, from a development standpoint," he says.
Many of these challenges in real estate and development are shared across the U.S. For example, Hanna says there's not enough homeownership. Not enough new product is being build and not enough new construction is available that fits the lifestyle people want. Some of that can be attributed to the trouble developers are facing, in part because of supply chain issues and rising costs.
The interest rate increase, however, has not yet slowed down the residential market. Part of that reason is that millennials, which are in their 40s now and are a huge, upwardly mobile group, is looking to buy and they're so far not scared off by the rising interest rates ... yet.
"I think that if it's at 6.5 (percent) we'll see a pause, we'll see a 60-90 day pause," he says. "But that population segment wants to have home ownership and it's affordable in the region."
