As reported in Wednesday’s Wall Street Journal, the changes in Downtown Cleveland reflect a national trend. Downtown office space is less desirable, which is paving the way for luxury apartment living.
An iconic Cleveland landmark the East Ohio Gas building has sat vacant for five years in the heart of downtown Cleveland. This summer, the 21-story tower will transform into the Residences at 1717, a luxury apartment building with 223 apartments, sweeping views of Lake Erie and a private fitness center. Rents will go as high as $2,575 a month for a two-bedroom unit, a rate of more than $17 per square foot annually. That is 20% higher than what businesses were paying in that same building while it operated as an office tower.
Historically, office rent has been substantially higher than apartment rent. The reverse is now happening with buildings like the Residences. In urban areas across the country, landlords are repurposing their buildings as housing needs for young professionals are shifting. The rental market has experienced higher demand combined with a glut of downtown vacant office space. This is particularly true for older office buildings with architectural charm.
The apartment vacancy across the country is at an all time low of 4.1%. At the same time, the office vacancy rate sits around 16.7%, well above its average of 14.9% since 1980. Many companies have been slow to expand in this sluggish recovery period. Additionally, the economy has been harsh on older buildings. Many of these employers have shrunk or consolidated space.
While this trend has taken hold in New York for some time, it is catching on in places like Cleveland, Pittsburgh, Buffalo, Baltimore and Cincinnati. One of the popular incentives used is federal tax credits for rehabbing historic properties.
Here in Cleveland, it is projected by 2015 that downtown will have 7,071 residential units, up from 2,881 in 2000. That would include 600 units in seven office-to-apartment conversions under way. This is coming from a generation of young professionals who saw firsthand the housing crisis and the mortgage meltdown. They are wary of owning a home and very interested in urban apartment living. Apartment owners like Doug Price of K&D Management used to focus on the suburbs. Now, for reasons such as changing demographics and housing needs, to name a few, it is the urban core that has their attention.