The city of Cleveland suffered a major blow last month when basketball royalty LeBron James announced he was ditching the Cleveland Cavaliers for sunny South Beach. So the city could certainly use this good news: A limited amount of new inventory and steadier employment in white-collar sectors will support greater stability in Cleveland Class A apartments this year, though lower-tier properties may continue to face challenges. Development activity remains in check, with completions in 2010 expected to expand rental stock by just 0.2 percent. Healthy renter demand persists for upper-tier units with amenities, as the Class A sector recorded positive net absorption of nearly 50 units in 2009, compared to negative net absorption of 800 units in the Class B/C sector. Moreover, pre-leasing activity at the sole project under way in the Downtown/The Flats submarket was reportedly strong at the end of last year.
High unemployment levels remain a major challenge for Cleveland. Employment in the area is improving as the market added 18,000 positions in the first half of this year after shedding 53,000 jobs in 2009. As of the second quarter of 2010, the unemployment rate in Cleveland was an estimated 8.9 percent, down about 10 basis points from year-end 2009. However, weak housing and commercial real estate markets have contributed to the elimination of 5,700 construction jobs during the past year, a decrease of 18.9 percent. In addition, 2,600 financial activities positions have been cut in that time, representing a 3.9 percent decline in the sector.
Fortunately, hiring in the professional and business services and education and health services sectors will continue to support stable operations at top-tier properties going forward. Approximately 5,000 positions will be created in these sectors in 2010, where typically higher wages buoy demand for Class A units.